Practical Applications In Being Right Is Not Enough: Buying Options to Bet on Higher Realized Volatility, published in the Fall 2020 issue of The Journal of Alternative Investments, Roni Israelov, of NDVR Capital Management, and Harsha Tummala, of AQR Capital Management, illustrate that it is not easy to profit from long equity option positions. They do so by creating delta-hedged option portfolios and examining the returns to the resulting long-volatility strategy. The authors find that traders must not only correctly predict that volatility will increase during their holding period, but also must successfully time their entries and exits. Profitably accomplishing these tasks is particularly difficult due to the well-documented volatility risk premium (VRP) that usually accrues to option writers. The authors analyze the following measures and their relationships: the percentage change in realized volatility of the underlying asset (equity indexes), the ex post VRP, and long option portfolio returns levels. They also examine the usefulness of using the strategy to hedge equity losses. Additionally, they perform an event study to investigate the timing effects of entering and exiting long volatility positions. TOPICS:Options, performance measurement