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Profitability of Intra-day Short Volatility Strategy Using Volatility Risk Premium  

Kim, Sun-Woong (국민대학교 비즈니스IT전문대학원)
Choi, Heung-Sik (국민대학교 비즈니스IT전문대학원)
Bae, Min-Geun (국민대학교 비즈니스IT전문대학원)
Publication Information
Korean Management Science Review / v.27, no.3, 2010 , pp. 33-41 More about this Journal
Abstract
A lot of researches find negative volatility risk premium in options market. We can make a trading profit by exploiting the negative volatility premium. This study proposes negative volatility risk premium hypotheses in the KOSPI 200 stock price index options market and empirically test the proposed hypotheses with intra-day short straddle strategy. This strategy sells both at-the-money call option and at-the-money put option at market open and exits the position at market close. Using MySQL 5.1, we create our database with 1 minute option price data of the KOSPI 200 index options from 2004 to 2009. Empirical results show that negative volatility risk premium exists in the KOSPI 200 stock price index options market. Furthermore, intra-day short straddle strategy consistently produces annual profits except one year.
Keywords
Volatility Risk Premium; VKOSPI; KOSPI 200 Stock Price Index Options; Intra-day Short Straddle Strategy; Volatility Trading;
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Times Cited By KSCI : 1  (Citation Analysis)
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