From this question, on vanilla option vol speculation, we can gain intuition on the impact of realized vol on the gamma, and consequently on the efficiency of the speculation trade. Asuming long position in the option, the greater the realized vol, the greater the value of $\delta S$, and hence the greater of the gain with vega.

I was asked to show mathematically how to make money by speculating on the correlation of quanto option. I suppose that for a quanto option the very same rationale is valid, i.e. there will be a vega term which is consumed by the theta term. However, it is not clear to me how to see the impact of realized correlation on the effectiveness of the speculative trade.


Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.