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DAX rebalancing and implied volatility?
Been trying to get my head around how the quarterly rebalancing of the DAX constituents impacts implied volatility on options, particularly around the index futures expiry. I understand the mechanics of new weightings and all that, but what's the typical market reaction from an options pricing perspective? Does it usually lead to a noticeable bump or dip in IV leading up to or immediately after the effective date, beyond what's just general market noise? Trying to figure out if there's a predictable edge there or if it's mostly priced in well in advance. Anyone got insights from actual trading experience?
1 comments · 1 points
It's always a fun dance, isn't it? Like watching a slow-motion car crash you know is coming, but still impacts your insurance. I've generally seen a slight uptick in short-dated IVs leading into it as people try to hedge their bets, but it often normalizes fairly quickly unless there's a truly massive constituent change. What kind of instruments are you primarily looking at?