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Interview Question

Risk Interview(Student Candidate) Jericho, NY

If someone was going to trade an option based on an

  increase in volatility, how would he do that? What would the other risks associated with the position be?
Answer

Interview Answer

2 Answers

1

A spread that would allow for increases in volatility but decrease losses if the options moves too much in value would be a straddle or strangle. A put and call option at the same (or near) strike prices would allow you to gain from an increase in volatility and a move in the underlying price of the stock. The risks associated are the options expiring at the strike price and volatility decreasing over the course of the option

Interview Candidate on Apr 1, 2009
0

Enter a variance swap.

Long Vol on Oct 2, 2012

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