The cornerstone of Modern Portfolio Theory is that Volatility Equals Risk. A similar concept exists in Pre-Modern Investment Theory: Safety Through Diversity. In the Pre-Modern example, diversification of assets leads to lower volatility by diluting outliers in the...
Capturing volatility spikes and declines is a high risk game. The most direct way to speculate on the direction of volatility is to go long or short a volatility instrument such as the VIX futures contracts or its exchange traded derivatives such as VXX, SVXY, XIV...
One of the most common ways that options traders lose money is a sudden, unexpected drop in historic or implied volatility. When this happens, strategies that once made money start losing money. And at the same time, risk from unforeseen “Black Swan”...
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