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Volatility Index Arbitrage Meaning

Volatility index arbitrage is a trading strategy that seeks to capitalise on discrepancies between the price of volatility derivatives-such as options or volatility tokens-and the realised or expected volatility of the underlying asset. Traders compare the implied volatility embedded in options prices to the actual volatility observed in the market.

If implied volatility is overpriced relative to expected volatility, a trader might sell options while hedging the underlying asset, expecting to profit when volatility returns to normal levels. Conversely, if implied volatility is underpriced, buying options and hedging with the underlying can yield profits.

In crypto markets, volatility tokens and perpetual futures tied to volatility indexes create opportunities for arbitrage similar to those in traditional finance.

However, these strategies require sophisticated risk management and market data analysis.

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Finery Markets BVI Limited (“Finery Markets”) provides software, technology infrastructure, and related Information and Communication Technology (ICT) services on a Software-as-a-Service (“SaaS”) basis. Finery Markets acts solely as a software vendor and does not operate a trading platform, does not intermediate, match, execute, clear, or settle transactions, and does not engage in any activities that would require regulatory authorisation under applicable laws.

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