DVOL simple explanationA bit about DVOL (source available from Deribit insights.deribit.com ). It deals with volatility of volatility and can be divided by 19, etc.
I'll try to explain it in simple terms. I conditionally split DVOL into two ranges: the "it’s going to blow" range and the "everything is calm" range. The "everything is calm" range is roughly 48-53 — this range indicates that the market has found some stability and is trading within a certain band. In this range, vertical spreads can be effective. They offer limited risk and can gradually accumulate the underlying asset.
However, when DVOL starts to leave this range, it signals that the market is about to experience significant moves. Importantly, it doesn’t matter if it breaks upward or downward — it would be a mistake to assume that a DVOL at 38, for example, indicates just a 2% price change with calm trading. On the contrary, it suggests that the coming trading sessions could be very active. Therefore, when DVOL moves beyond 55 or drops below 45, a strangle with a +/- 10 delta enters the scene (it’s important to understand time risk, i.e., when you plan to close it).
As you might notice, the same vertical spread can be transformed into a strangle with just two clicks when DVOL moves from 50 into the "it’s going to blow" territory. After that, it’s a matter of observation. I’d suggest that potential losses on the spread could exceed those of simply holding a strangle in such cases. Additionally, the strangle won’t limit your gains on the underlying asset in case of accelerated moves. The trick with a strangle, however, is that ideally, it should break out of its strike range before one-third of the time to expiration has passed.
DVOL trade ideas
How Volatility Effect Trading?Volatility can have a significant impact on trading. Lets say you're trading Bitcoin during a period of high volatility. The price may experience rapid and large fluctuations, which can present both opportunities and risks. Traders who can accurately predict and react to these price swings may be able to make substantial profits. On the other hand, if you're trading during a period of low volatility, the price may be relatively stable, making it harder to find profitable trading opportunities. It's important to consider volatility when formulating your trading strategies. Hope that helps :)
