Is it true or just my misconception that pro traders trade volatility while retail readers try to predict stock direction (unsuccessfully most of the time).

What are the pros and cons of trading volatility (via options) and hedging all directional risk as opposed to betting on the directional move of a stock?


2 Answers 2


There are a plethora of ways to trade, including multiple ways to trade volatility so it's not a binary consideration.

"Retail readers" confuses me so I'm not sure whether you are comparing heding with directional stock traders or directional investors. Therefore, I'll just offer that the trader hedging all directional risk is playing in the middle, grinding out income eliminating the tails. IOW, he doesn't participate in large up or down moves in the single issues or in the market.


Can't totally agree with that.

Volatility trading is just one trading type of many. In my opinion it doesn't depend on whether you are a professional trader or not.

As you might have heard, retail traders are said to create 'noise' on the market, mainly due to the fact that they aren't professional in their majority. So, I would assume, if an average retail trader decided to trade volatility he would create as much noise as if would have been betting on stock directions.

Basically, most types of trading would require a considerable amount of effort spent on fundamental analysis of the underlying be it volatility or directional trading. Arbitrage trading would be an exception here, I guess. However, volatility trading relies more on trader's subjective expectations about future deviations, whereas trading stock directions requires deeper research of the underlying. Is it a drawback or an advantage? I.d.k.

On the other hand-side volatility trading strategies cover both upward and downward movements, but you can set similar hedging strategies when going short or long on stocks, isn't it?

To summarise, I think it is a matter of preference. Imagine yourself going long on S&P500 since 2009. Do you think there are many volatility traders who have outperformed that?

  • Not sure...I am sure some vol traders have beaten the S&P since 2009. Hard to tell. Most pro option traders trade volatility and delta hedge, hence I was asking why they choose this over a trend following strategy?
    – Victor123
    Apr 15, 2015 at 14:46
  • 2
    A volatility trader would have outperformed that by many multiples. A volatility trader would also profit many hundreds of percent from a prolonged rally in either direction.
    – CQM
    Apr 15, 2015 at 14:48
  • @CQM: There is my answer then! Do you have any book recommendations?:) I only have 'Volatility Trading' by Euan Sinclair
    – Victor123
    Apr 15, 2015 at 14:52
  • @Victor123 that seems like it would be a good book. I might need to read that one myself. The summary of that book goes over the applicable topics.
    – CQM
    Apr 15, 2015 at 15:14
  • 1
    @Victor123 John Hull puts me to sleep
    – CQM
    Apr 15, 2015 at 15:46

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