Quote:
Originally Posted by AltonKelsey
So far at least 75 PA members have been hospitalized trying to fathom what Ludi said.
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Let me take a shot:
"We extract a lot of alpha via volarb. Volatility surfaces can be decomposed into tradeable gammas and readily predicted."
Alpha is a measure of performance against some baseline, like the S&P.
volarb -- volatility arbitrage?
What is a volatility surface?
decomposed into tradeable gammas. Well, the gamma of an option is expressed as a percentage. This percentage denotes the change in the delta in response to a one point movement of the underlying stock price. If delta is change then gamma is the change of the change. So decomposed into tradeable change of deltas.
readily predicted -- I think he means volatility surfaces can be readily predicted.
So, is volarb somehow used to trade the change of the predicted delta differences?
