‘Perfect’ VKO trades knock the smile off vol
Dealer hedging of options which profit from ‘spot down, vol down’ may have amplified rare dynamic
Think Foinavon in the 1967 Grand National, or Leicester City in the 2016 Premier League. This year’s against-the-odds winner in derivatives markets is the volatility knockout option, which has rewarded its lucky holders with payouts up to 10 times the size of the initial premium.
“People who bought these in late 2021 did the most unbelievably perfect trade you could imagine,” says Eric Barthe
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