In finance, **volatility arbitrage** (or **vol arb**) is a type of statistical arbitrage that is implemented by trading a delta neutral portfolio of an option and its underlier. The objective is to take advantage of differences between the implied volatility of the option, and a forecast of future realized volatility of the option's underlier. In volatility arbitrage, volatility rather than price is used as the unit of relative measure, i.e. traders attempt to buy volatility when it is low and sell volatility when it is high.

Read more about Volatility Arbitrage: Overview, Forecast Volatility, Market (Implied) Volatility, Mechanism

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**Volatility Arbitrage**- Mechanism

... Armed with a forecast

**volatility**, and capable of measuring an option's market price in terms of implied

**volatility**, the trader is ready to begin a

**volatility arbitrage**trade ... A trader looks for options where the implied

**volatility**, is either significantly lower than or higher than the forecast realized

**volatility**, for the underlier ... the trader will realize a profit on the trade if the underlier's realized

**volatility**is closer to his forecast than it is to the market's forecast (i.e ...

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