Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities

Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities

In this paper, we examine the performance of certain short option trading strategies on the S&P500 with backtesting based on historical option price data. Some of these strategies show significant outperformance in relation to the S&P500 index. We seek to explain this outperformance by model...

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Bibliographic Details
Main Authors: Alexander Brunhuemer, Gerhard Larcher, Lukas Larcher
Format: Article
Language:English
Published: ACRN Publishing 2021-09-01
Series:ACRN Journal of Finance and Risk Perspectives
Subjects:
option trading
s&p500-index
implied volatility
realized volatility
Online Access:https://www.acrn-journals.eu/resources/jofrp10j.pdf
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spelling doaj-4663426e6a55471a9f82a228f9c68ed72021-09-20T11:54:12ZengACRN PublishingACRN Journal of Finance and Risk Perspectives2305-73942021-09-0110116620310.35944/jofrp.2021.10.1.010Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 VolatilitiesAlexander Brunhuemer0Gerhard Larcher1https://orcid.org/0000-0001-8191-5824Lukas Larcher2Johannes Kepler University LinzJohannes Kepler University LinzJohannes Kepler University LinzIn this paper, we examine the performance of certain short option trading strategies on the S&P500 with backtesting based on historical option price data. Some of these strategies show significant outperformance in relation to the S&P500 index. We seek to explain this outperformance by modeling the negative correlation between the S&P500 and its implied volatility (given by the VIX) and through Monte Carlo simulation. We also provide free testing software and give an introduction to its use for readers interested in running further backtests on their own.https://www.acrn-journals.eu/resources/jofrp10j.pdfoption tradings&p500-indeximplied volatilityrealized volatility
collection DOAJ
language English
format Article
sources DOAJ
author Alexander Brunhuemer
Gerhard Larcher
Lukas Larcher
spellingShingle Alexander Brunhuemer
Gerhard Larcher
Lukas Larcher
Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
ACRN Journal of Finance and Risk Perspectives
option trading
s&p500-index
implied volatility
realized volatility
author_facet Alexander Brunhuemer
Gerhard Larcher
Lukas Larcher
author_sort Alexander Brunhuemer
title Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
title_short Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
title_full Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
title_fullStr Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
title_full_unstemmed Analysis of Option Trading Strategies Based on the Relation of Implied and Realized S&P500 Volatilities
title_sort analysis of option trading strategies based on the relation of implied and realized s&p500 volatilities
publisher ACRN Publishing
series ACRN Journal of Finance and Risk Perspectives
issn 2305-7394
publishDate 2021-09-01
description In this paper, we examine the performance of certain short option trading strategies on the S&P500 with backtesting based on historical option price data. Some of these strategies show significant outperformance in relation to the S&P500 index. We seek to explain this outperformance by modeling the negative correlation between the S&P500 and its implied volatility (given by the VIX) and through Monte Carlo simulation. We also provide free testing software and give an introduction to its use for readers interested in running further backtests on their own.
topic option trading
s&p500-index
implied volatility
realized volatility
url https://www.acrn-journals.eu/resources/jofrp10j.pdf
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AT gerhardlarcher analysisofoptiontradingstrategiesbasedontherelationofimpliedandrealizedsp500volatilities
AT lukaslarcher analysisofoptiontradingstrategiesbasedontherelationofimpliedandrealizedsp500volatilities
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