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.
If you already trade options, you know that every asset has a variety of different expiration months. For the sake of a good example I’m going to focus on the Russell 2000 (RUT). The farther out we move from expiration, the more Vega increases. At the same, implied volatility (IV) moves more slowly the farther out in time we go. You might think that a perfect balance between the two relationships would be most desirable. Our live-market studies indicate, however, that we need to apply a Vega Multiplier in order to get accurate readings of our Vega position across the different expiration months.
For example, over in a “Flash Crash” of May 6th, 2010 you will see that the near-term option IV increased substantially more than the IV of the farther out months. The amount that implied volatility decreases across time doesn’t quite make up for the amount that Vega increases. We need to first multiply that Vega position by a Vega Multiplier to get a correct Vega reading on our trades.
A calendar spread in the software indicates a positive Vega all the time. When you apply the Vega Multiplier concept, though, you see there are times that calendar spreads actually contain some negative Vega attributes. This makes for an extremely interesting study.
Another excellent use for this is to calculate one’s Vega position on an entire portfolio. Many option traders strategically trade multiple months at the same time. By using Vega Multipliers these traders can calculate a truer Vega value for their whole portfolio. Those of you who understand Vega know how important it is to be able to read your Vega position. Imagine if your software shows a Vega position of positive 5,000 when you’re realistic Vega is actually -500. This is what can happen to you if you don’t use the Vega Multiplier concept developed by San Jose Options, Inc.
Get more free information and instruction about option Greeks generally, and about Vega in particular, at www.SJOptions.com. You can watch the full Vega Multiplier video in its entirety and begin putting this important concept to use in your personal trading right away. I’m confident you’ll wind up with a better understanding of how it all works.
Trade safer! Trade smarter! Visit San Jose Options today for your free Option Trading Video on the Vega Multiplier !
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