ext: Book

Term Structure - Longer-dated has higher IV Skew - Far OTM and ITM options have higher IV Being short skew - betting that the differential between OTM options at ATM options will decrease

Greeks

Volga

• dVega / dIV

Vanna

• dDelta / dIV

Variance vs Vol Swaps

• Variance swaps have more exposure to skew (far OTM options)

Vol Overpricing

Due to:

• Demand for hedges
• People buying OTM lottery tickets
• Bids from structured products e.g. variable annuities

Volatility

• Vol is standard deviation of returns. So if a stock is always going up with a constant slope, it's vol is still 0
• Vol of vol is underpriced
• Futures on vol indices are short vol of vol
• Volatility futures are generally overpriced because realized < IV

VIX

• Pricing is based on 1/S² weighted (S is strike price) therefore it's exposed to the price of deep OTM puts