Volatility Trading:

Volatility can be traded by buying or selling the options. Since an option position generates a Vega position, the change in the implied volatility of the underlying asset generates P&L. (profit and loss)

When the aim of the position is to trade only volatility not the spot rate, traders take delta neutral positions in the option market. The most popular way to trade on volatility is to buy or sell at the money straddle or 25 delta strangle.


At the money straddle:

Investor buys the straddle to have a long vega portfolio. A straddle is portfolio of one at the money call and one at the money put. Investors buys both of these options to make the straddle.


25 delta strangle:

Investor buys the strangle to have a long vega portfolio. A strangle is portfolio of one 25 delta out of the money call and one 25 delta out of the money put. Investors buys both of these options to make the strangle.
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