I am aware this book - volatility trading by Euan Sinclair, and it's nice book. But I am looking for book focus on var/vol swap trading, i.e., introduce about trading strategy/ideas by using var/vol swap, i.e, relative value, dispersion, rolling short variance... Just want to understand this new area so any basic introduction would work. If you know some paper to recommend, please also share. Thanks a lot!


2 Answers 2


You'll probably have more luck finding var swap and vol swap strategies from sellside pieces than in a book.

From what I've read, I don't think RV trading via var or vol swaps is much different than using vanilla options. Buy the cheap var, sell the expensive var (all based on historical relationships), hope you get lucky on the timing (c.f. SX5E vs. SPX in early 2018 or Asia vs. SPX in early 2020).

  • 1
    $\begingroup$ Agree re "lucky on timing": Shorting an instrument with a squared dependence on volatility can be painful, as those who were short Varswaps in March 2020 or Feb 2018 found out. Quite a bit more painful than shorting Vol. $\endgroup$
    – nbbo2
    Apr 27, 2021 at 14:55

Before getting into trading - get to know the basics. These are risky products.

Towards a Theory of Volatility Trading by Peter Carr et al. is probably the most important paper.

There are two documents from JP Morgan that I reference here and a short discussion about replication.

With regards to dispersion trades, I argue you will find it very hard to find a pricing tool that will offer you a way to price these (properly). Rolling short variance - that is a carry trade. There is a saying for carry trades: “Up by the stairs and down by the elevator”. Now this is traditionally for FX. For vol and variance, you could probably say down the cliff.

To illustrate, assume you entered short S&P500 VS for 6months on March 4th 2020 with 100k vega notional (in terms of var ~2k). Fair Vol was just below 25% (replication, not actual market quote). Your accrued loss on March 18th would have breached 2 million. One month later, -3 mil.


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