Volatility: Hypothetical Question

Hi everyone,

It feels like I haven't been on FF in months lol

Anyway, let's say you were able to predict volatility with about 90%+ accuracy. Meaning, you knew how much the market was going to move around. What would you do with this knowledge?

Don't confuse this with knowing what the price will be. All you know is the difference between the highs and the lows, NOT direction.

Would this information even be useful? Right off the top of my head, you'd at least know when to place trades (obviously right before you predict volatility to be picking up).

Thanks

You would do vol arb: http://en.wikipedia.org/wiki/Volatility_arbitrage

BTW, this is way above retail head.

http://www.mathworks.com/matlabcentr...itySurface.jpg

http://www.cmis.csiro.au/risk/images...Volatility.jpg

The first reply is completely correct.
Read Sinclair to find out more about vol arb.

Thanks for the replies =D this totally works! Anyone else have anything to add?

I don't know too much about vol arb, but I learned about straddles a while ago which I think would work for you: http://en.wikipedia.org/wiki/Straddle

I have no clue if vol arb would be more profitable than straddles but you should be able to figure something out or rather which of the two has the best risk reward profile.