# Volatility Arbitrage Strategies

Volatility arbitrage harvests mismatches between implied and realised volatility, relative value in the skew/term structure, and dispersion between correlated assets. Crypto options provide extreme dislocations, but sizing is constrained by liquidity and collateral cost.

## Implied vs Realised

Options markets frequently price implied vol at a premium of **5–15%** over subsequently realised vol. Short-vol approaches earn a risk premium but face tail-event drawdowns; long-vol approaches act as convexity insurance.

## Skew and Term Structure

BTC/ETH options exhibit persistent **negative skew** (puts trade richer than calls) and steep term structures around events. Calendar spreads, risk reversals and butterfly structures isolate these factors from directional exposure.

## Dispersion Trading

Index-like baskets versus constituents can produce uncorrelated returns when average correlation diverges from implied correlation. In crypto, BTC–ETH dispersion trades capture alt-coin seasonality without naked directional risk.

## Execution Constraints

Liquidity concentrates near ATM strikes and 7–30 day maturities. Wide OTM spreads, high collateral requirement and delta-hedging friction reduce capacity. Initial capacity estimate: **low seven-figures per strategy**.

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*Source: Deribit Options Analytics; Glassnode derivatives reports; CME crypto options literature; SoVael Trading options backtests.*