Straddles and the Volatility Risk Premium
Felix Goltz and Wan Ni Lai, “Empirical Properties of Straddle Returns,” The Journal of Derivatives 17:1 (Fall 2009), 38-48. Abstract: An at-the-money (ATM) straddle, i.e., going long an ATM call and an ATM put with the same maturity, is generally thought of as a volatility trade. It is essentially delta-neutral, but a large price move in either direction or an increase in implied volatility will produce a profit. A delta-neutral straddle position also has zero beta, so…
Wednesday, September 30, 2009
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