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Is there a simple way to spread the volatility of one product against another? By simple I mean one trade executed on each leg rather than constant delta hedging.

I can see a lot of opportunity for mean reversion trades in volatility between correlated markets but very few markets have underlying volatility products.

Would buying a straddle in one and sell a straddle in another (although not an exact replication) still be close enough to exploit a convergence/divergence in volatility between the two products? Any other ways to go about it?

Regards Tom

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    $\begingroup$ It depends on the speed of mean reversion. The slower the speed the worse the performance will be of your straddle strategy. Also, 'volatility' is still a bit vague as there are many forms / concepts of volatility. $\endgroup$
    – user34971
    Jan 20, 2022 at 8:09
  • $\begingroup$ Thanks for the reply Frido. Your points are noted. To be more specific the VIX versus RVX or VOLQ (the Russell 2000 and Nasdaq volatility indexes), i don't have access to RVX or VOLQ, only the VIX ETF but want to play VIX versus RVX or VOLQ as a spread trade. $\endgroup$
    – Tom
    Jan 20, 2022 at 9:34
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    $\begingroup$ I suppose you want to stick to listed options, no OTC products, and no vol derivs. Also I gather you'd like to rebalance as infrequently as possible, and no delta-hedging of the options. In that case the only thing I can think of at the moment is not to trade ATM straddles, but zero vanna straddles, i.e. options/straddles which have zero vanna, or straddles with strikes as close as possible to the zero vanna strike. For more background on why/what this is, see the paper 'Taylor made volatility swaps'. I believe it's possible to download it for free from some site. $\endgroup$
    – user34971
    Jan 20, 2022 at 11:26

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