Vega and how to figure out where it is going

D

DAYMSTR

I understand the Greeks and with the exception of buying a DITM option (delta being the most important) and selling it after a 5 penny move in 1-2 minutes, vega is very important to my trading style as I trade BAC, HAL, XOP and MRO and I usually buy the 17ths (standards) of each month and then supplement with weekly's.
I understand that before earnings and big events change in implied volatility will increase (vega will make your option worth a lot more) but let's say this upcoming week, I have almost 200 BAC contracts on 4 different positions (130 calls and 58 puts) and what causes I.V. to rise? Is it simply the bigger the price fluctuation as in if BAC drops 2% monday and then goes up 1% tuesday this is obviously causing IV to go up right? Also, I have noticed that IV drops at the end of the day after about 11-12 and keeps decreasing until close in most situations.
My question is, what can I do to gauge where I believe IV is going as Vega is the golden greek IMO and can also really fuck you over even if you have the right price movement.
ANY ADVICE is welcomed and lastly, I buy straddles and strangles occasionally for 17 days (calendar out) and then buy weekly's with intraday trading, how does the Vega change when you are in a straddle/strangle/spread BUT ONLY buying options, not selling in this discussion.
 
DAYMSTR said:
Also, I have noticed that IV drops at the end of the day after about 11-12 and keeps decreasing until close in most situations.
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well, this is an edge in itself...and as zerohedge points out, the buy-the-dip mentality has become somewhat of a self-fulfilling prophecy

DAYMSTR said:
My question is, what can I do to gauge where I believe IV is going as Vega is the golden greek
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not sure about idiosyncratic factors around the 4 stocks u mentioned, but for broader market there's a tendency for a ramp at end of day (retail flows into passive products drives volume in ETF daily rebalancing)

DAYMSTR said:
I buy straddles and strangles occasionally for 17 days (calendar out) and then buy weekly's with intraday trading, how does the Vega change when you are in a straddle/strangle/spread BUT ONLY buying options, not selling in this discussion.
More...

yeah being long volatility, especially over relatively long timeframes using a buy-and-hold strategy would have being quite challenging (ie. hard to envision profits given amt of theta decay). someone is down $50+million this year alone implementing a strategy of going long VIX call options: http://markets.businessinsider.com/news/stocks/mystery-trader-loses-55-million-betting-on-volatility-2017-3-1001887023-1001887023
 
DAYMSTR said:
I understand the Greeks and with the exception of buying a DITM option (delta being the most important) and selling it after a 5 penny move in 1-2 minutes, vega is very important to my trading style as I trade BAC, HAL, XOP and MRO and I usually buy the 17ths (standards) of each month and then supplement with weekly's.
I understand that before earnings and big events change in implied volatility will increase (vega will make your option worth a lot more) but let's say this upcoming week, I have almost 200 BAC contracts on 4 different positions (130 calls and 58 puts) and what causes I.V. to rise? Is it simply the bigger the price fluctuation as in if BAC drops 2% monday and then goes up 1% tuesday this is obviously causing IV to go up right? Also, I have noticed that IV drops at the end of the day after about 11-12 and keeps decreasing until close in most situations.
My question is, what can I do to gauge where I believe IV is going as Vega is the golden greek IMO and can also really fuck you over even if you have the right price movement.
ANY ADVICE is welcomed and lastly, I buy straddles and strangles occasionally for 17 days (calendar out) and then buy weekly's with intraday trading, how does the Vega change when you are in a straddle/strangle/spread BUT ONLY buying options, not selling in this discussion.
More...

We offer Sterling VolTrader (previously Livevol X). With this software you can examine changes in implied vol over time. This might help with your process.

https://www.sterlingtradingtech.com/sterling-voltrader/
https://www.lightspeed.com/trading-platforms/livevol-x/

Email me your contact information if you apply for a demo so I can help and know who you are.

Bob
 
There are ways to chart VEGA. It takes some commitment and programming but if this is your jam, wellworth it. It is inherently doable. Read pieces by Jeff Augen then PM me. Step 1 is in creating a straddle where the underlying is "held constant" then the rest is pretty much falls in line after that. You can have a continuous contract vega which will enable you to plot it out OHLC style.
 
@MushinSeeker My idea is that will inherently volatile stocks like MRO but not as volatile as AMD (where IV fluctuates way too much for a straddle IMO) a 17th Straddle or strangle (I prefer strangles) that you can either sell they spread as one unit, or break it down into the call side and put side and sell them when they are both at a profit as MRO within 2 weeks (theta hopefully doesn't start really kicking in until after the profits are taken) should allow me to make money regardless. Where am I wrong? Thank you
 
I have questions about your post... MRO is marathon oil? What is 17th straddle? What do you mean when you say break it down into call then put when they are both at profit.. I assume you mean get rid of the long straddle by legging out of them by selling the call on upmove then selling put on downmove? If you can be that good in legging in/out then why not just trade the underlying? You don't have that theta and delta bleed going into expiration...That legging out seems good on theory (although I am sure really good traders do it) but for every exit you do nicely where the stock goes down hard after you sell the call to enable you to also profit on the put, there is another trade where stock keeps going up after you sell the call and put expires worthless. You'd be better off charting straddles in OHLC fashion, then trade them as a package or better yet, put on long delta spreads or short dlt spreads and find your timing edge in the underlying thru backtests.
 
@MushinSeeker 17th straddle means the standard monthly options that expire on the 17th of every month.
I bought Options Day Trading and am reading it now, a little over my head but that is good. Legging them out is what I mean correct. The classic problem like with MRO a couple weeks ago is I got rid of all my puts at a $4,000 profit and if I waited (literally) 4-5 minutes and then a couple hours, I would have made 16k profit, this would have WELL covered all expired calls so yes, you are correct, not the best idea unless you're lucky. OHLC, what is this? Can you explain Put on long delta spreads or short dlt spreads please?
Lastly, I am reading the book and when he talks about 2:1 ratios and 20 short puts and 10 long puts what does that mean? Like 20 short puts at a different expiration and 10 at a longer expiration or is he talking about buying 20 naked puts and selling 10 naked calls?

THANKS A MILLION
 
ok.. My first suggestion is throttle down your size if you are still in the options 101 stage of learning. 2nd OHLC just means being able to visualize straddles in an open,hi ,lo,close time series much like a typical stock chart. 3rd. Ratios usually mean Long 10 Jan 15 calls/Short 20 Jan 20 calls or backspreads which is Short 10 Jan 15 / Long 20 Jan 20 calls (backspreads). LAstly, putting on long deltas or short delta spreads mean putting on option spreads that do well if MRO moves up (long delta spreads) or do well is MRO goes down (Short delta spreads) examples of long delta spreads would be L call verticals , call calendars... if this is still confusing, PM and please throttle down your size ...
 
Thanks, I get Long Delta and short like DITM options with REALLY HIGH DELTAS and low gammas and the opposite for short Delta, I get 15 cent contracts BUT a $8.99 trading fee each way whether 1 contract or 1 million, so it benefits me to trade higher amounts as I can trade 10 each way (total for buy and sell of commissions would be like 26 bucks), for 100 contracts total for buy and sell would be $52!
Thanks again and if you want to take a look at this BAC Straddle and custom spread I am in, here it is,
1. 100 Calls at $25 S.P.
2. 30 Calls @ $24 S.P.
3. 30 Puts @ $23 S.P.
4. 28 Puts @ $22 S.P. They all expire on the 17th

THANKS AGAIN
 
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