Options are not about “predicting the market.”

For a quant, the options market is a mathematical playground where 

volatility, skew, convexity, and order flow

 create repeatable edges — if modeled correctly.

This guide breaks down how professional quantitative traders extract alpha from options markets.

1. Understand What You’re Actually Trading

The theoretical backbone starts with the The Concepts and Practice of Mathematical Finance and the classic Options, Futures, and Other Derivatives.

But real markets violate all these assumptions.

Options are primarily volatility instruments.

Market makers quote implied volatility (IV). Your job as a quant is to determine:

Is implied volatility overpriced or underpriced relative to realized volatility?

In reality, implied volatility varies by:

This violates Black–Scholes assumptions.

Options markets are less liquid than equities.

If dealers are short gamma near a key strike → price accelerations increase.

This connects to liquidity models popularized by firms like Renaissance Technologies and Citadel (though their exact strategies are proprietary).

A quant does NOT trade based on direction alone.

Index IV often trades rich due to crash insurance demand.

4️⃣ Volatility Regime Switching Models

Short volatility strategies look profitable… until they don’t.

7. Real Truth About Making Money in Options as a Quant