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Opportunity in Volatility Divergence

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

Recently we have been discussing the outlier chance of the pound being on par with US dollar at 2%. While we have looked at the pound's volatility, we did not compare it to the highly correlated Euro. When looking at this pair we see that volatilities have greatly diverged.

With the current spread between pounds and euros hovering around 8%, the market is easily in the top 10th percentile. One can trade the difference in volatility with options, but the trade isn't guaranteed to profit even if the volatilities revert.

Check out today's segment as Tom and Tony discuss ways we can play this pair.

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