During periods of market distress, investors’ risk aversion increases and implied volatility in the options markets moves higher to reflect declines in the physical markets and the increased uncertainty confronting investors

Posted: January 10th, 2022

During periods of market distress, investors’ risk aversion increases and implied volatility in the options markets moves higher to reflect declines in the physical markets and the increased uncertainty confronting investors (when people are more risk averse, they will pay more to protect or hedge their portfolios). Develop a basic trading strategy for a speculator who believes that risk aversion will soon abate. (LO 20.4)