← InstitutionalLesson 16 · 4:15
Cross-asset volatility: relative value between markets
Summary
You can compare volatility across markets with two yardsticks: each market against its own realized volatility, and the gap between two markets against that gap's history. You can explain a vega-matched relative value trade and why a shock can still make it lose.
Key terms
- relative value
- Comparing one market's price with another's, or with its own history, to find which is dear and which is cheap.
- yardstick
- The standard a volatility is measured against, such as its own realized volatility or the history of a gap between two markets.
- VIX futures
- A separate market betting on where the VIX will be on a future date.
- volatility gap
- One market's implied volatility minus another's, judged against that gap's own history.
- vega matching
- Sizing two legs so each side carries the same vega, so a move in both markets together mostly cancels.
Check yourself
Answer each question to see why the right answer is right.
1. The XYZ index's options price 18% and ABC's price 24%. XYZ really moved 12% and ABC 22%. Which is cheaper by yardstick one?
2. On 2 Nov 2026, 30-day at-the-money SPX options priced about 17% while the S&P 500 had moved under 12% over the prior 21 trading days. Does that alone say sell?
3. Over two example years, ABC's implied volatility minus the XYZ index's usually sat near 9 points. Today it is 6. What does yardstick two say?
4. On 5 Aug 2024 the VIX closed near 39 while the August VIX future settled near 32, and the VIX was back near 16 by the August expiry. What does this show?
5. You sell 10 XYZ index straddles at 18% and buy 10 ABC straddles at 24%, matched on vega. In a shock, XYZ jumps to 34% and ABC to 36%. What happens?
Finished the video and the quiz? .