Vega problems

sle said:
You want to divide vega by the square root of time, not multiply. Let me get you an example on a couple of real options.
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Hi Sle,

Thanks for coming back. I did that, but when i do it, i get May -0.01, June 0.11 and Sep -0.07

For example, Sep vega is -0.82 so formula i use is -0.82÷SQRT(134) = -0.07

Im totally confused. :(
 
I am totally confused too.. lol.. gamma rent to figure out daily b'even should have theta in there ... I also think the base time should be 365 not 30... aghh my head hurts.. gotta look at my notes way back on these "special " calculations.
 
sle said:
rtVega = vega / sqrt(max(21, busDaysToExp)/252)
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I'm sorry, i'm totally lost.

Is it possible you could post a working example of how you arrived at the June rtvega figure of 2.07 with an explanation please?

The net June vega is 0.71 as you know and has 43 days until expiry. Could you guide me through it please? I don't appear to be the only one who is totally confused.

Many thanks once again for all of your help. :)
 
Ok, your net vega in Jun is .71 and you have 43 calendar days to expiration.

First, compute your year fraction:
T = 43/365 = 0.1178
Now, divide your vega by square root of T:
rtVega = 0.71 / srqt(0.1178) = 2.0685
 
EdgeQuest said:
sle.. thanks for sharing... just wondering why you are putting a 21 day floor?
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Because at a certain point the root time relationship breaks down - when vol is really short dated, it usually moves in-parallel with 1 month point or so. Similarly really long points (4+ years) will move in parallel more then root time
 
Interesting tidbit a couple of posts back from you about legging into a time spread. Maybe start w a call backspread in the backmonth and then on rallies substitute the short back month call w front month calls? then do it in a ratio so after x days, you end up with a classic time spread? hmm.
 
EdgeQuest said:
Interesting tidbit a couple of posts back from you about legging into a time spread. Maybe start w a call backspread in the backmonth and then on rallies substitute the short back month call w front month calls? then do it in a ratio so after x days, you end up with a classic time spread? hmm.
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i think you are saying the following


long a call spread in the back end ( 1 by 1)

when front month vols rally, take the short upside strike of the call spread and roll it forward via a ratio diagnol

this may work for gold but not for other markets, also need to take transaction costs into consideration as a futures trader. i had access to interbank market and also could leave orders at mids with the interbank brokers
 
not quite. you mentioned selling front calls in rallies and buying back calls into dips which led me to believe that you are legging into time spreads. I speculated that the starting position would be a call backspread in the back month since I assume you want to start delta flat although you'd be vega+ . When xyz rallies, you would cover 1 short call in the back and sub it with a short call in the front month.... so you'd start with a -10/20 call b'spread 90days out and morph it into a 20x20 time spread...I could be way off...lol
 
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