Minding Your Options – Is Vega just another Greek?

San Jose Options, Inc. (SJOI) has developed a unique concept. This is the company whose options mentoring program rests on live real-time trading sessions with questions and answers from the viewing audience. This original and very useful concept relates to the Option Greek called Vega. Option Greeks are an integral part of options trading that you must understand if you want to have long-term success in highly competitive options trades. [youtube:bJSDnhHGMjo?fs=1;[link:Option Greek Vega] by San Jose Options, Inc.;http://www.youtube.com/watch?v=bJSDnhHGMjo?fs=1&feature=related]

Experienced options traders know that every asset has many different expiration months. Vega increases as you move farther away from expiration, and on the other hand, implied volatility (IV) moves more slowly as you move farther out in time. It seems logical to aim for a perfect balance between the two relationships, but our studies at SJOI show us that we need a Vega Multiplier in order to calculate accurate readings of our Vega position over the various expiration months.

During the “Flash Crash” of May 6th, 2010 the near-term option IV increased a lot more than the IV for the months farther out in time. Mathematically speaking, the IV rose nearly 4X as much near-term as compared to long term contracts such as leaps, but the Vega on the other hand, doesn’t increase farther out in time on an exact inverted ratio. They never seem to precisely even out. We realized that you need to multiply your Vega position by a Vega Multiplier first, if you ever expect to get a correct Vega reading on your trades.

ThinkOrSwim automated trading-software may depict a Calendar Spread showing a positive Vega at all times. However, after you apply the Vega Multiplier concept, you will sometimes see that Calendar Spreads actually possess negative Vega attributes. Very interesting, don’t you think?

Imagine if your software shows you a Vega position of positive 5,000 when a far more realistic Vega is actually -500. When you don’t use the Vega Multiplier concept developed by San Jose Options, this actually can and does happen to you. Many option traders adopt a strategy of trading several months at one time. These traders can calculate a truer, more accurate Vega value for their whole portfolio by using Vega Multipliers. If you understand Vega, then you already know how critically important it is to be able to read your Vega position correctly.

Find additional information on option Greeks, Vega, constructing safer trades and more at www.SJOptions.com. Watch SJOI’s complete Vega Multiplier video and start applying this concept in your personal trading today, for a better understanding of how it all works tomorrow. The more you understand, the smarter you’ll tend to trade.

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