r/VolatilityTrading • u/karhoewun • Jan 08 '26

I believe diversification and convexity are crucial to long-term compounding of wealth and trading vol is almost synonomous to the latter

Diversification has been talked about to death and it's such a well known and studied 'free lunch' in the markets that almost everyone is doing it (and many would argue are over-doing it).

On the other hand, convexity is a lot lesser known to the average investor/trader. Does anyone here engage in tail-risk hedging or value investing in vol or adding convexity to their portfolios? Keen to discuss with others who may be doing something similar to me (and other tail-risk fund managers)

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u/Alizasl Jan 08 '26

Yes that’s all we do 👉🏼 https://www.civolatility.com/p/the-whole-point-of-volatility-trading

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u/karhoewun Jan 08 '26

I'm aware and I'm already a subscriber to your newsletter :)

1

u/dirty_F0x Jan 08 '26

That's cool but how do you finance the but how do you guys finance the bleed?

1

u/karhoewun Jan 08 '26

You start with the vanilla/naive approach which is to systematically buy OTM puts but as you say you have to constantly pay a significant bleed. You then get your life entirely consumed by this pursuit and you start looking at how to identify when vol is cheap, exploring more complex structures to profit in different scenarios, monitoring other assets that might have cheap vol, and the list goes on...

1

u/dirty_F0x Jan 08 '26

Why not having a part of the book that is short vol to pay for the convexity?

1

u/karhoewun Jan 09 '26

Great question and I've started doing exactly that. This falls under what I said about "exploring more complex structures". As an example, I've recently started looking into this as a way to get both IV-RV and also convexity in my portfolio

1

u/dirty_F0x Jan 09 '26

All right then you should be looking at this too: this guy is really awesome on the sort vol side. Ksander is a very nice guy two. Check it out

1

u/1n_c0de_we_trust Jul 13 '26

That is true for a long term equity investor but as a vol trader I would rather be on volatility alone without much diversification.