Vega problems

hardtofin

hardtofin

Hey guys,

Yet another post on vega. I am having a really hard time recently with the insanely low volatility we are experiencing. Hopefully someone here will be able to answer my question.

Overall i am net SHORT vega. I am long May vega, only small. Long June vega, about 50% of my position, and short September vega, about the other 40%.

At the close today, i took another hit on my position due to a vol crush. On average, the May vol came down by 0.9%, the June by 0.9% and the September by only 0.3%. As most of my positions short vega is in Sep, i attribute the smaller drop in September vega as being the reason that I lost overall.

My question is, why did the vol in Sep drop less than in May and June. I get that May is close to expiry, but the June still has 6 weeks. I don't understand why the September vol would hold up so well.

Any help would be appreciated.

hardtofin.

Here is a diagram of the vols.

Screen Shot 2017-05-04 at 18.48.54.png
 
Take vega for each option and scale it by then square root of time. That's your root time vega. If you want to be roughly insensitive to the first order moves in the vol surface, it should add up to zero.

PS. Today's changes where roughly root-time consistent. I see June and Sep root-time changes around 30bps at 7250 strike
 
Last edited:
sle said:
Take vega for each option and scale it by then square root of time. That's your root time vega. If you want to be roughly insensitive to the first order moves in the vol surface, it should add up to zero.

PS. Today's changes where roughly root-time consistent. I see June and Sep root-time changes around 30bps at 7250 strike
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Many thanks for your help so far. I have now worked out the root time vega for my entire portfolio and added it up. It comes to -4.76 (seen in the red box at the top). Does this mean overall I am short vol over time too? I am a little unclear as to exactly what this is telling me. I only studied maths to a very basic level.

I have enclosed a screenshot of my position (with some columns edited out for privacy) so you can see what I mean. Each coloured section has been calculated by the amount of days remaining until expiry. Any further help you could give is most welcome.

hardtofin

Screen Shot 2017-05-04 at 22.54.31.png
 
Vega is different from volatility. Vega is additive.

portfolio vol = square root of sum of (time * vol square for each asset in portfolio)

Vega for portfolio at any instance in time is simply the sum of vega for individual assets in portfolio. Vega means how much your asset moves if underlying moves. So, just add the vega for each asset in portfolio and you will get portfolio vega at that instance of time.
 
newdog said:
Vega is different from volatility. Vega is additive.

portfolio vol = square root of sum of (time * vol square for each asset in portfolio)

Vega for portfolio at any instance in time is simply the sum of vega for individual assets in portfolio. Vega means how much your asset moves if underlying volatility moves. So, just add the vega for each asset in portfolio and you will get portfolio vega at that instance of time.
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Robert Morse said:
That is Delta

Vega is the risk of Implied vol changing.
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I think newdog missed typing in the word volatility in his post.
 
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