Options and the Volatility Risk Premium Option Volati Risk Premiu FT Press Delivers Insights for the Agile Investor eBook Jared Woodard
Download As PDF : Options and the Volatility Risk Premium Option Volati Risk Premiu FT Press Delivers Insights for the Agile Investor eBook Jared Woodard 
Master the new edge in options trades the hidden volatility risk premium that exists in options for every major asset class.
One of the most exciting areas of recent financial research has been the study of how the volatility implied by option prices relates to the volatility exhibited by their underlying assets. Here, I’ll explain the concept of the volatility risk premium, present evidence for its presence in options on every major asset class, and show how to estimate, predict, and trade on it....
Options and the Volatility Risk Premium Option Volati Risk Premiu FT Press Delivers Insights for the Agile Investor eBook Jared Woodard
This text has thoughtful, even deeply insightful, observations on the volatility risk premium (hereafter, VRP).Let me give two pointed examples. First, I was genuinely surprised to learn that VRP is higher for equity index options than for individual company shares [I wonder if this is true for commodities indices as well?]. Second, I never would have thought that VRP is higher for treasuries than for equities. It is intriguingly high for the 5 year note.
My only complaint is that calling this a "book" borders on false advertising. It is like 1/3 the length of an academic paper!
If you are really cheap and just passingly curious about VRP then download and read Tony Cooper's "Easy Volatility Investing" for free.
But serious options/volatility traders will want to read it.
japanjohn.com
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Options and the Volatility Risk Premium Option Volati Risk Premiu FT Press Delivers Insights for the Agile Investor eBook Jared Woodard Reviews
As an avid option trader I was excited to dive into Woodard's eBook and see what kind of revelations were in store. At 4500 words the eBook is relatively short and to the point. Woodard sticks to the task at hand and avoids embellishing on any tangential issues. The content seems to be tailored primarily toward professional traders and others well grounded in option theory. I suspect sophisticated retail option traders may also enjoy the material. It is essentially divided into three sections which (a) introduce readers to the definition of the volatility risk premium (b) provide evidence for the existence of this volatility risk premium in the options arena and (c) present ideas for "estimating, predicting, and trading the volatility risk premium."
Initially readers receive an in-depth explanation of the volatility risk premium (VRP). In the options market this VRP exists "when the volatility implied by those options is higher than the subsequent volatility realized by the underlying asset during the life of the option." Woodard included an enlightening example of the theory behind a "perfectly priced option". Though I've read commentary on it before, I found Woodard's approach to be particularly easy to follow.
When providing evidence for the existence of VRP in different asset classes, the discussion turns decidedly more "mathy". Those unwilling to simply accept Woodard's assertion that VRP exists will find ample data to back up such a claim. Admittedly there were too many numbers for a simpleton like myself.
Of all the pictures included in the book, I found the one displaying the seasonal volatility of the S&P 500 over the past 30 years to be most illuminative. We've all heard (and most have seen) the tendency of the market to exhibit low volatility toward the end of December and during the summer months as well as high volatility in October and November. Woodard investigates these seasonal tendencies and quantifies the extent to which they exist.
Because of the persistent VRP built into option prices, Woodard concludes that traders should be "oriented toward being net sellers of options". Despite the occasional shocks that occur to short volatility strategies (think 1987 and 2008), a "sizable and economically meaningful" edge still exists for vol sellers.
Short is probably the thing to hightlight. The reality is it should not even be called a book but the author does in his "paper" offer some useful information. In the spirit of looking at the glass half full, that take the good and leave the bad, I believe that you should read it with this mindset you will not be dissappointed.
This text has thoughtful, even deeply insightful, observations on the volatility risk premium (hereafter, VRP).
Let me give two pointed examples. First, I was genuinely surprised to learn that VRP is higher for equity index options than for individual company shares [I wonder if this is true for commodities indices as well?]. Second, I never would have thought that VRP is higher for treasuries than for equities. It is intriguingly high for the 5 year note.
My only complaint is that calling this a "book" borders on false advertising. It is like 1/3 the length of an academic paper!
If you are really cheap and just passingly curious about VRP then download and read Tony Cooper's "Easy Volatility Investing" for free.
But serious options/volatility traders will want to read it.
japanjohn.com
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