#786 - What Is Long Volatility?


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By Kirk Du Plessis. Discovered by Player FM and our community — copyright is owned by the publisher, not Player FM, and audio is streamed directly from their servers. Hit the Subscribe button to track updates in Player FM, or paste the feed URL into other podcast apps.

Hey everyone. This is Kirk here again from Option Alpha and welcome back to the daily call. Today, we’re going to answer the question, “What is long volatility?” Long volatility can just be described as an options trading strategy or a trading strategy in general that profits from an increase in volatility. When someone says that they’re long volatility, that basically just means that they’ve bought into a volatility product that would profit if implied volatility in the underlying shares or the general market goes up in volatility. If I’m in a long volatility strategy that could be a long strangle, long straddle, it could be long calls, long puts as single option contract trades, these trades all profit from an increase in volatility in the market.

One of our favorite long volatility strategies is to use a VIX hedging strategy whereby we use a couple of combinations of contracts to go long the VIX and that helps with our positions because we give ourselves some long volatility exposure in case we get into a black swan or into a really volatile environment where the market goes down pretty quickly. Again, long volatility just means that you’re in a strategy, in a position which would profit from an increase in market volatility. Now, this doesn’t necessarily mean that the market has to go down for volatility to increase. We do see sometimes that markets going up or positions going up also is accompanied by an increase in volatility, so all that it means is that you’re just profiting from an increase in a higher implied volatility in the future. Hopefully this helps out. As always, if you guys have any questions, let me know and until next time, happy trading.

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