Can Vega help for the strategy?

[ramaTrade]

Quote from johntsai90:

hi,

i don't have any particular strategy in mind, but just wondering if my delta and gamma are all quite negative, if the set of combination i choose have a postive vega, I found that it can reduce my loss, or even earning a little bit at the end of day when the market goes to different direction than i expected.


Isn't that weird, or something magic in it?

So you are looking for an options strategy that gives you negavtive delta and gamma but positive vega ?

Then sounds like you need play different strategies out using the Options Lab, find it at http://www.TheOptionsLab.com choose any stock such as 'aapl' or 'rimm', then design the strategy you have in mind, make sure you pay attention to the full position's greeks.

 

[johntsai90]

Quote from dmo:

It's a consistent phenomenon, especially intra-day, that when an index goes down the implied volatility of its options goes up, and vice versa. I wouldn't call it magic, that's just the way it is. It is not necessarily true of options on other things. If you're trading options on indexes then you simply need to know about it and take it into account.

If you're asking why does this phenomenon exist, it has to do with the one-sided nature of the stock market. In the crude oil market for example, all the producers fear the price going down while the rest of us fear the price going up. It's a two-sided market. In the stock market, 99% of participants want the market to go up and fear the market going down. So the character and psychology of a declining market is entirely different from that of a rising market, and that is reflected in the behavior of option premiums.

Thanks for your information,

just wondering about this phenomenon, in the above example, the crude oil market, how do i know who are investors in the market?
how to I take their behaviour into account when i tried to formulate the option strategies?

 

[dmo]

Quote from johntsai90:

Thanks for your information,

just wondering about this phenomenon, in the above example, the crude oil market, how do i know who are investors in the market?
how to I take their behaviour into account when i tried to formulate the option strategies?

You can look into the Commitment of Traders report, which may help. More directly, you can also look at the OVX, the Oil VIX, which is a volatility index based on options on USO. If you chart it against USO, you can get some ideas on their relationship.