Quant Radio: Volatility Trading System Design with Scaling Risk Management

In this video, we explore the design of a volatility trading system that blends two quantitative options strategies with a strong emphasis on risk management. The first strategy takes a long-short position in straddles, based on signals from the implied volatility term structure, aiming to exploit short-term dislocations. The second strategy involves selling out-of-the-money (OTM) puts, but only when the absorption ratio suggests stable market conditions—helping to avoid exposure during periods of systemic risk.

The video also walks through how these strategies are combined using Equal Risk Contribution (ERC) to balance their risk inputs, and how a Constant Proportion Portfolio Insurance (CPPI) overlay helps protect the system from large drawdowns. Historical data and real-world events like the 2008 crisis and COVID crash are used to highlight both the strengths and limitations of each approach.

If you’re interested in systematic trading, options strategies, or risk-adjusted portfolio design, this breakdown offers a clear, research-based perspective on how to use volatility both as a source of return and a signal for risk control.

Find the full research paper here: https://community.quantopian.com/c/community-forums/volts-a-volatility-based-trading-system-to-forecast-stock-markets-trend-using-statistics-and-machine-learning

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Quant Radio is an AI-generated podcast, intended to help people develop their knowledge and skills in Quant finance. This podcast is not intended to provide investment advice.