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What Is a ‘Volatility Arbitrage’ Strategy Based on the IV/HV Relationship?

Volatility arbitrage exploits the expected convergence of IV and HV by buying or selling options based on their current differential.
Greeks.Live14.11.25

What Is a ‘Volatility Arbitrage’ Strategy Based on the IV/HV Relationship?

Volatility arbitrage involves taking a position based on the expectation that the difference between IV and HV will narrow. If IV > HV, a trader might sell options (short volatility) expecting IV to drop.

If IV < HV, a trader might buy options (long volatility) expecting IV to rise.

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