Options Trading Strategy Based On "Volatility Smile"

Since the listing of sse 50ETF options in China,not only has the option market run smoothly,but the quality of the entire financial market is also improving steadily.However,under the background of increasingly active trading in China's options market,the relevant research on options is still more focused on the exploration of options pricing and role,and less on options trading strategies.Under this background,this paper USES the statistical arbitrage idea,designs the option trading strategy based on the "volatility smile",and makes a comparative analysis of different trading strategies through the out of sample back-test.According to the assumption of the B-S option pricing model,volatility should be constant,but in fact,the implied volatility derived from the b-s model is not constant,and often presents a "smile" shape from the perspective of strike price,that is,the implied volatility of imaginary and real options is higher than that of average options.The academic research on the causes of "volatility smile" can be roughly divided into two types:one thinks that the spike and fat tail of the income distribution cause the formation of "smile";the other thinks that the market trading sentiment causes the formation of this curve.Is no matter for what reason,we can determine the existence of the "volatility smile" is a kind of stable form with its inner mechanism,if we use different degree options implied volatility in value difference to measure the tilt of the "volatility smile",then we are likely to find the tilt is stable for a long time,the virtual value,plain and real options value of options implied volatility of the difference value fluctuates around an average for a long time.Statistical arbitrage is based on an arbitrage of the mean thought,based on a portfolio of statistical analysis of historical data to prove the portfolio spreads difference(volatility)sequence is smooth,the relative prices of assets in the portfolio in an average level for a long time,when the relative price deviating from the average,combination of an asset is overvalued and the other assets underestimated,so buying undervalued assets and selling open overvalued assets,when back to average relative prices will be two liquidated assets,so as to make profits.We know the "volatility smile" tilt is likely to remain stable for a long time,that is different in value degree options implied volatility of difference sequence is likely to be stationary time series,if indeed,difference sequence for stationary series,then we can apply statistical arbitrage thought to the "volatility smile",based on the value of implied volatility of the mean reversion characteristic design of statistical arbitrage strategy,in order to profit.This paper takes the Shanghai 50 ETF options as the research object,in values for different options implied volatility difference after implementing stationarity test,choose one of the most has the stationarity of portfolio(the first virtual value peace value options),using the quantile method and the standard deviation method,based on the analysis of empirical distribution difference sequence and volatility of fitting,designed four kinds of different trading strategies,including the static,dynamic quantile quantile method method,static GARCH model method and dynamic method of GARCH model.After the out of sample back-testing of the four trading strategies,the indexes such as yield rate and volatility of yield rate are used as evaluation criteria to summarize the advantages and disadvantages of the different trading strategies,and as far as possible to provide reference opinions for investors.