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How do you construct something that lets you buy "vol of vol"? not necessarily for VIX, but any particular stock or index.

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Sounds like you're asking for compound options, which are options on options. These things are considered exotic and would have to be negotiated over-the-counter. – chrisaycock♦ Oct 17 '12 at 19:11
yeah, but if i wanted to DIY it? how could it be done. i just wanna see how exactly it would work. – user13783 Oct 17 '12 at 19:12
I just updated my comment to have a link to an academic paper about it. – chrisaycock♦ Oct 17 '12 at 19:12
appreciated. ty. – user13783 Oct 17 '12 at 19:14

2 Answers

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It depends on whether the second term in "vol of vol" refers to realized or implied. If realized, I don't know. If implied, you could "DIY it" by buying straddles on a volatility product and hedging deltas with the underlying futures. There are options on VIX, GVZ (gold), OVX (oil) and the other CFE futures although only the VIX options are active.

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There are really only a few ways to trade vol of vol even in the index space. In the implied space, you can trade options on VIX. In the realized space, you can trade options on realized variance (illiquid these days) or trade var>vol spreads.

Also, vol of implied vol in equities is linked to the slope of the skew, so going long or short risk reversals is a proxy.

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