How to Benefit from an Expected Rise in IV's

[marinemonk 10]

India will have its once in five year general elections at some point in the next 7 months. If the current government does not decide to call them earlier, they will have to be held in May 2014 as the term of the current government expires then.

 

It is almost a given that IVs will rise from the current levels the moment the elections are announced. I'm looking for a way to benefit from this increase without taking any directional call on the markets. Although India does have its own VIX, there is no futures on the VIX. If there were futures, I would have bought the futures and rolled them over till the elections.

 

Would like to know if there is a way to benefit from an expected increase in IVs in the absence of VIX futures. One has to keep in mind that the IVs could increase sharply at any point from now till May and be able to exit when that spike comes and of course, the fact that I'm looking for a non-directional strategy.

[Blister 10]

Buy a Straddle, then hedge the underlying to eliminate delta risk.

[marinemonk 10]

Since the elections are about 6 months away, buying a straddle now will lead to significant time value erosion irrespective of what happens to volatility. I want to be able to benefit from an increase in volatility without having the risk of losing money through time value decay.

[SIUYA 11]

Since the elections are about 6 months away, buying a straddle now will lead to significant time value erosion irrespective of what happens to volatility. I want to be able to benefit from an increase in volatility without having the risk of losing money through time value decay.

 

if you can find someone who will give you all the upside with none of the downside good luck - i too would like to find that.

 

why dont you buy a longer term straddle, sell a shorter term straddle, or simply trade the gamma (as suggested) to pay for the time decay (You only really need a put or a call not both) - you will likely end up break even less costs unless you get some good moves or are very good at rehedging.

 

if you have a large enough account you can often get a volatility swap or a variance swap - but you will pay for this as well.

You cant expect someone to give you something for nothing.