20 International Journal of Financial Management Volume 7 Issue 1 January 2017 Abstract Commensurate with this exponential growth in the depth and breadth of derivative markets and the range of financial products traded therein, there needs to be developed a comprehensive mathematical framework to support the, hitherto, empirically established features of trading strategies involving these instruments. It is the objective of this article, to provide a mathematical backup for the various properties of ‘volatility trading’ strategy using call options. Additionally, an attempt is made to elucidate the implications of behavior of various ‘option Greeks’ on volatility trading. Keywords: Financial Derivatives, Trading Strategies, Option Greeks, Black Scholes Model, Volatility Trading On Volatility Trading & Option Greeks J. P. Singh* * Professor, Department of Management Studies, Indian Institute of Technology, Roorkee, Utarakhand, India. Email: jpsiitr@gmail.com, jatinder_pal2000@yahoo.com of fnancial derivative securities with special reference to trading of volatility. Review of Literature The Black Scholes valuation model (Black & Scholes, 1973; Black, 1976; Hull, 2012; Jarrow & Rudd, 1983; Merton, 1973) constitutes the cornerstone of modern fnance. The model, as initially propounded, envisaged the formulation of a partial differential equation for the pricing of the European call option by creating a portfolio that exactly replicated the payoff of the option and the value of whose constituents was known. The European call option is a fnancial contingent claim that entails a right (but not an obligation) to the holder of the option to buy one unit of the underlying asset at a future date (called the exercise date or maturity date) at a price (called the exercise price). The Black Scholes formulation is premised on the following assumptions that are now, collectively referred to as the Black Scholes world (Merton, 1971a, 1973b; Black & Scholes, 1973; Jarrow & Rudd, 1983; Wilmott, 2000; McDonald, 2002; Hull, 2012) and are assumed to hold in the sequel: 1. The stock price follows the generalized Brownian motion process with constant mean and volatility. 2. The short selling of securities with full use of pro- ceeds is permitted. 3. There are no transaction costs or taxes. All securities are perfectly divisible. 4. There are no dividends during the life of the derivative. 5. There are no riskless arbitrage opportunities. 6. Security trading is continuous. 7. The risk-free rate of interest, r, is constant and the same for all maturities. Introducton A complete renaissance of the global fnancial markets has taken place in the last two decades. With the introduction of a multiplicity of tradable instruments, fnancial products of immense variety and possessing features compatible with the goals and needs of a large segment of the community are now available for trading. Popular awareness about the derivative instruments and their salient characteristics has increased manifold in the recent past. Use of these instruments by banks, corporates and individual investors as investment avenues has also escalated with this growing familiarity, thereby adding to the trading volumes in various fnancial markets. Commensurate with this exponential growth in the depth and breadth of derivative markets and the range of fnancial products traded therein, there needs to be developed a comprehensive mathematical framework to support the, hitherto, empirically established features of these instruments. It is the objective of this article, to provide a mathematical backup for the various properties Article can be accessed online at http://www.publishingindia.com