Trading Volatility
Variance swaps, VIX futures, and dispersion trades let you buy or sell volatility itself — and harvest the volatility risk premium.
Once volatility can be priced consistently, it can be traded as an asset class. Variance swaps pay the difference between realized variance and a fixed strike of implied variance, giving clean exposure to the volatility risk premium, which in equities is on average negative. VIX futures and options trade the level and shape of the S&P 500 volatility term structure, usually in contango, so structurally costly to hold long. Dispersion trades short index volatility against a basket of single-name volatilities to isolate correlation, and volatility arbitrage pits model value against market quotes across structures. Each strategy prices off the surfaces built and calibrated earlier in this track.