Hedging Vega
- Thread starter LanceJ
- Start date
If you can't do this simple math then you should not be in the business of trading options. Plain and simple.
What are you trying to take exposure to? You want to hedge Vega then why do you want to trade options? If you want a clear answer then you need to ask clear questions.
If you are unsure about the answers, just wait a bit, someone smart will teach us something. I'm trying to hedge Vega while having exposure to direction... If I think volatility is high, but would like to buy options for directional exposure, I do not want to get crushed when the volatility falls.
Hedging vega isn't easy at the retail level. If you want as close to a strictly directional position as possible, trade the underlying or very DITM options. Trading the future will offer that tasty leverage as well.
If you think vol is high then SELL options for directional exposure. Sell OTM puts or OTM put verticals if you think we're going to rally, Sell OTM calls or OTM call verticals if you think we're going to keep going lower. That's if you think IV is high.
If you want this exposure then you should just buy shares.
You can’t hedge out Vega exposure without closing the actual line. Everything else will introduce skew or term structure risk.
There is no point to owning options if you don’t want exposure to volatility (realized or implied) and practically speaking You can’t just have realized vol exposure without corresponding Vega exposure without taking on all sorts of basis risk.
Practically you cannot do this.