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Alternative Market Briefing

Maple Leaf on how to profit from volatility

Friday, September 07, 2012

Benedicte Gravrand, Opalesque Geneva:

Michael Wexler, veteran volatility trader and co-founder of Maple Leaf Capital, explained in a recent Opalesque TV interview how investors can profit from a high volatility environment. Maple Leaf Capital is an investment management company founded in 2002, with principal offices in London and Hong Kong, and which manages client assets in the areas of volatility trading, illiquid loans, fixed income momentum arbitrage, macro risk, and crash overlay strategies.

According to Wexler, it is possible to profit from volatility because the dislocation in the pricing of options between fair value and actual trading is greater at higher volatility levels.

"The first thing to note about the volatility space is that the bulk of participants in it are not volatility traders," he explains. 99% of investors buying and selling calls and puts, he continues, do so with a directional view in mind. They are not sensitive to the volatility (vol) component. Paying 5% or 6% for a call option will not make much of a difference for them. But for the volatility traders – such as those at Maple Leaf – this difference is huge, and it is one where they can extract value if the option is over or under-priced. Those 99% of investors are what he calls "non-economic traders".

"If you buy a call on......................

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