Directional trading in volatility means trading in the direction of the volatility. If the volatility is high, we may initiate a short trade in volatility. In this section, we'll first look at how to trade volatility using option strategies. Then, using an option and the underlying price to trade volatility, we'll look at the VIX index and the delta neutral position.
One way of trading volatility is to use options. We'll look at two option strategies for trading volatility or price movement in the underlying option.
The straddle position consists of two options: one put and one call. Straddles are useful when the viewpoint of the underlying market is neutral, which means there is no speculation in the long-term movement of the market. It also means the straddle position is useful when one wants to trade volatility, regardless of the movement of the market.