Whatever your view
"Whatever your view" says an advertisement of a leading UK financial betting service.
In the middle age, humans would invest in an asset with a view that it would increase in value. Then, they came up with a way of investing in an asset with a view that it will decrease in value and called it 'shorting'. One just needs to borrow the asset from somebody that owns it, sell it, and then at some point buy it cheaper and return it to original owner.
Then, at some point, humans invented instruments whose value changes with an asset's expected volatility over a period and called them 'options'. Moreover, asset volatility is the only parameter that is both unknown and unhedgeable in an option. (Smart) humans could now trade volatility - invest in instruments that increase or decrease in value according to the market's expectation of volatility. Well, their value also fluctuates with time, but that's part of the game. By the way, using options they can also make bets on the volatility of the volatility ('vvol') of an asset. They just need to buy and sell different amounts of options maturing at different times.
More or less at this point in time, humans also came up with a way to have a view on correlation between assets. They created baskets of assets and options markets around them. (Even smarter) humans can trade correlation as the difference between the value of an option on a basket and the value of a basket of options. How elegant.
In the middle age, humans would invest in an asset with a view that it would increase in value. Then, they came up with a way of investing in an asset with a view that it will decrease in value and called it 'shorting'. One just needs to borrow the asset from somebody that owns it, sell it, and then at some point buy it cheaper and return it to original owner.
Then, at some point, humans invented instruments whose value changes with an asset's expected volatility over a period and called them 'options'. Moreover, asset volatility is the only parameter that is both unknown and unhedgeable in an option. (Smart) humans could now trade volatility - invest in instruments that increase or decrease in value according to the market's expectation of volatility. Well, their value also fluctuates with time, but that's part of the game. By the way, using options they can also make bets on the volatility of the volatility ('vvol') of an asset. They just need to buy and sell different amounts of options maturing at different times.
More or less at this point in time, humans also came up with a way to have a view on correlation between assets. They created baskets of assets and options markets around them. (Even smarter) humans can trade correlation as the difference between the value of an option on a basket and the value of a basket of options. How elegant.
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