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3 posts tagged with "introduction"

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A Simple Option Trading Strategy with Realized Volatility

· 7 min read
Qytrees Research
Qytrees Research
Quantitative Finance

In this blog, we discuss the relationship between realized volatility (RV) and implied volatility (IV), focusing on BTC as a case study. The goal is to introduce a simple option trading strategy that takes advantage of potential mispricing between RV and IV. We'll then compare the performance of this strategy against an alternative approach that doesn't incorporate RV information, highlighting the value of using RV in volatility-based trading strategies.

Disclaimer:

This analysis is for educational purposes only and is not financial advice. The strategies discussed, particularly those involving shorting options, carry significant risks, especially in volatile markets like cryptocurrencies. This blog does not cover the impact of margin, which can increase risk for traders.

Understanding Realized Volatility

· 5 min read
Qytrees Research
Qytrees Research
Quantitative Finance

Realized volatility is a statistical measure that quantifies the degree of variation in the price of a financial asset over a specific period. This metric provides insights into the past behavior of asset prices and can be valuable for derivative traders.

This chart shows Bitcoin's (BTC) realized volatility over the past year. The x-axis represents time, while the y-axis shows the annualized realized volatility percentage. Higher realized volatility zones indicate periods of increased market activity and price changes.

What is Realized Volatility?

Realized volatility is calculated based on historical price data and is mathematically defined as the standard deviation of past returns. It measures the historical price fluctuations of an asset, providing an indication of its actual volatility. Typically expressed as an annualized percentage, realized volatility offers a standardized method for comparing the volatility of different assets over various time periods.

There are multiple methods to calculate realized volatility. These parameters can be chosen by the user to adjust according to their needs.

Options Market & Conventions

· 8 min read
Qytrees Research
Qytrees Research
Quantitative Finance

Delta P.A.

Options on digital assets are financial derivatives that provide the holder the right, but not the obligation, to buy or sell a digital asset at a predetermined price within a specified timeframe. These options work similarly to traditional options found in equity and foreign exchange (FX) markets, but they are tailored to the unique characteristics of digital assets such as Bitcoin (BTC), Ethereum (ETH), and other cryptocurrencies.