If one had a reasonably accurate forecast of the variance of the price of some market security, such that one knows approximately what the price variance will be tomorrow, but not whether the price will go up or down or nowhere, is there a good way to profit from that knowledge? I know one could reduce risk exposure by avoiding the most variable days, but I am asking if there is any instrument or strategy that directly profits from a high or known variance.
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Can you elaborate what you mean by this "one knows approximately what the price variance will be tomorrow, but not whether the price will go up or down or nowhere"? Do you mean high intraday volatility without knowing where it will close compared to the open?– 0xFEE1DEADCommented Jan 7, 2023 at 4:04
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See this question -- though I suppose I can't claim it as a duplicate since it was closed.– nanomanCommented Jan 7, 2023 at 4:20
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And also see this question for how options enable betting on essentially any characteristic of future price changes (including large or small magnitude independent of direction).– nanomanCommented Jan 7, 2023 at 4:28
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@0xFEE1DEAD Yes. The daily high and low contain exactly the same information as the difference between them and the midpoint. But my midpoint forecastsare of liwer quality than my range forecasts.– andrewHCommented Apr 22, 2023 at 21:17
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1 Answer
I'll preface this by saying that acting on material non public information is illegal (insider trading).
If you expect a big move but don't know in which direction, a straddle or strangle (long gamma/vega) is one way to play it.
Whether it's profitable depends on how much of it is already priced in and the subsequent IV (implied volatility) crush.
answered Jan 7, 2023 at 3:17
