Option Volatility Trading: Pricing, Risk, Surface Fitting, and Hedging

Summary

The document describes an options volatility trading module built around live pricing, portfolio risk tracking, and execution. It outlines three pricing models for different exercise styles and underlyings, with routines to calculate theoretical prices and Greeks from volatility or infer implied volatility from market prices using Newton iteration. It also explains nested data structures that keep underlying assets, option contracts, expiry chains, and portfolios synchronized as quotes change.

For analysis, the interface displays call and put quotes, implied volatilities, and cash Greeks, then aggregates position Greeks at contract, chain, and portfolio levels. Traders can inspect volatility curves across expiries, initialize reference volatilities from out-of-the-money options, fit selected strikes with cubic splines, and adjust the resulting curve. An electronic scanner seeks price edges and a delta hedger can offset exposure. The document provides workflow descriptions and a cash-delta example, but no backtest, execution study, or evidence that the scanner's opportunities are profitable; model choice and volatility fitting remain judgment-dependent.

Key ideas

• Different pricing models are assigned to European futures options, European equity options, and American futures options.
• The pricing routines calculate option values and Greeks from volatility or infer implied volatility from prices.
• Cash Greeks express exposure in monetary terms for a one percent change in an underlying variable.
• Reference volatility curves can be initialized from out-of-the-money options, fitted with cubic splines, and adjusted manually.
• Portfolio Greeks aggregate contract-level exposures, while automated delta hedging can reduce directional risk.
• The electronic scanner targets price edges, but the document supplies no evidence of profitability.

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• Strategies ETH Deribit Long-Premium Directional Trend-Rider (Cross-Venue: BINANCE Daily Momentum Signal -> Buy 20-Delta ~3-Week Deribit CALL in Confirmed Uptrends / PUT in Confirmed Downtrends, Convex Long-Vol Expression of the Proven Momentum Edge, Single-Leg Defined-Risk, 3-Parameter)
• Hypotheses ETH Deribit Long-Premium Directional Trend-Rider (Cross-Venue: BINANCE Daily Momentum Signal -> Buy 20-Delta ~3-Week Deribit CALL in Confirmed Uptrends / PUT in Confirmed Downtrends, Convex Long-Vol Expression of the Proven Momentum Edge, Single-Leg Defined-Risk, 3-Parameter)

From a private course collection; the original is not published.