trading VEGA
- Thread starter jenek-cowboy
- Start date
Maybe you should try to CLEARLY rephrase what it is exactly that you want to know (no abreviations, no ambigues words and please not too many spelling mistakes), with a CLEAR example (your previous examples where not too clear) so we really know what exactly is your problem and what it is exactly that you want to know. There are probably several people here who can help you, but it is hard for us if you state your problem not too clearly: we can't guess what you think. At this moment I have a hard time to believe you really read those three books I advised you and really understood them, but maybe you are actually asking something totally else from what I think you are asking.
Edit: use full setences, be exact in your descriptions and detail and use a dictionary. English is my third language ...
i shall follow you advise. Thank you.
Thank to all that have understood me.
From Russia with Love
I wanted to hear about how i may extract the profit from change of implied volatility of option.
Are you REALLY REALLY REALLY sure you've read and understood those books mentioned earlier!?
If you expect the IV to rise then go long Vega and if you expect the IV to fall then go short Vega.
You have to ask more specific questions as a broad question like above would just result in a broad answer, which can be found in a book.
extracting profits from a change of implied volatility is indeed very well explained in those books.
in broad terms you do the following
if you expect vol to rise go long vega: you do this by buying options (preferably options with a large vega) while hedging your delta continously (= dynamic delta neutral hedging), if implied vol rises you will make a profit equal to your vega through the combined effect of the gain in rise in the price of the option and the profits from your dynamic hedging minus the loss in theta.
if you expect vol to decline go short vega: you do this by selling options while hedging your delta continously, if implied vol falls you will make a profit equal to your vega through the combined effect from the fall of prices of your options which in itself is a combined effect of the instant change in volatility and theta minus the loss of of your dynamic hedging.
the dynamic hedging part is essential if your really want to play the change in implied vol ! ! ! don't try to be clever and leave this out.
one caveat however: there is no such thing as "the volatility" of one stock, implied vol tends to change over the prices in the same month as they go from in-the-money to out-of-the money (also known as the "smile") and over the different months (implied vol in different months doesn't have to move in the same way: one month can go up while another month can go down). So this can have an effect as your position in options moves.
in broad terms you do the following
if you expect vol to rise go long vega: you do this by buying options (preferably options with a large vega) while hedging your delta continously (= dynamic delta neutral hedging), if implied vol rises you will make a profit equal to your vega through the combined effect of the gain in rise in the price of the option and the profits from your dynamic hedging minus the loss in theta.
if you expect vol to decline go short vega: you do this by selling options while hedging your delta continously, if implied vol falls you will make a profit equal to your vega through the combined effect from the fall of prices of your options which in itself is a combined effect of the instant change in volatility and theta minus the loss of of your dynamic hedging.
the dynamic hedging part is essential if your really want to play the change in implied vol ! ! ! don't try to be clever and leave this out.
one caveat however: there is no such thing as "the volatility" of one stock, implied vol tends to change over the prices in the same month as they go from in-the-money to out-of-the money (also known as the "smile") and over the different months (implied vol in different months doesn't have to move in the same way: one month can go up while another month can go down). So this can have an effect as your position in options moves.
IN RUSSIA, VEGA TRADE YOU!
in USA the hot-dog trade TorontoTrader2
