This thesis focuses on developing and analyzing the trading strategies of KOSPI 200 Index options using volatility cone. We found that Hull White price overprices by 0.90% while Black Scholes price overprices options by 2.15%. In volatility skewness, Hull White price is flatter than Black Scholes price. We construct time dimensional volatility cones to examine the relationship of the implied volatility series to the corresponding distribution of historical volatility. We use two option pricing models. One is Black Scholes the other is Hull White. First, we used Black Scholes option pricing model. The results of trading simulation is that short straddle, short strangle can make a profit while long straddle, long stranggle can not. And the profit of OTM trading is the biggest. We conclude that individuals in KOSPI200 have a tendency of buying options, especially OTM. This makes options price overpriced especially OTM. Second, we used Hull White option pricing model. The results is the same to Black Scholes results. We conclude that Hull White option pricing model is not better than Black Scholes model in trading simulation. After elimination the period of the big basis(implied volatility - historical volatility), both short and long straddle, strangle can make a profit. We conclude that volatility cone trading can make a profit especially during stationary volatility period.
