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The Skinny on Options: Abstract Applications

How to Trade Volatility Clusters

The Skinny on Options: Abstract Applications

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

Last time, we learned about the role that ARCH Models play in empirical finance. The link they provide between heteroskedasticity and positive kurtosis is undeniable. But if we dig even a bit deeper, we see that they help explain the volatility clusters we experience in the market.

This information, coupled with what the research team has showed regarding the Rate of IV Contraction yields incredible support for selling premium in high IVR scenarios. In short, opportunity scales with IV, and those opportunities tend to persist once they materialize.

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