Volatility Arbitrage Interview Guide
Volatility arbitrage interview guide covering implied versus realized volatility, delta hedging, carry, jump risk, costs, and examples.
Candidates discussing implied versus realized volatility trades.
Volatility arbitrage compares implied and realized volatility
A simple volatility-arbitrage thesis asks whether option-implied volatility is rich or cheap relative to expected realized volatility.
Delta hedging isolates volatility imperfectly
A delta-hedged option position can reduce directional exposure, but hedge timing, gamma, jumps, costs, and liquidity still drive PnL.
Concrete example
Buying an option and delta hedging can profit if realized movement is large enough to overcome implied volatility paid and trading costs.
Carry has crash risk
Short-volatility trades can earn premium for long periods and lose sharply during jumps, liquidity shocks, or volatility regime changes.
Common mistakes
Candidates often call the trade arbitrage literally. In practice, it is a risk trade exposed to model, hedge, jump, and cost assumptions.
Practice the pattern
Use the LeetQuidity curriculum and calibration to turn this topic into a focused practice plan.