Delta Neutral not so neutral ?

BSM-modeling ignores vol-convexity due to the constant vol assumption. Using a proper stochastic model will produce OTM vommas -- ATM vommas are 0, otm vommas are +. OTM vols carry a vol-premium under a stoch vol model.

Vomma risk is a concern in any short gamma scenario, but overwhelmed by gamma and mag of vega // speed.

 

That is something you need to tell us...

I assume your models convention is for a net 1% change on vol..i.e,vol going from 40 to 39..

Some people look at a 1% vol change as 1% x 40 =.40

I am fairly certain the first measure is what you have..

Do you know what vol you are short??
Do you know where historical vol is ?
Do you know the high/low od VLO historical vol?

 

Another reason to choose OTM when expecting vols expansion in next few days ( speed) !

 

Yes, absolutely, as both dV and dG aren't priced under BSM; therefore the convexity is cheap if the vol-surface is modeled-flat.

 

dG IS priced under BSM, but absent dV.

 

Thanks for your advice. The delta is calculated using iv. I have played with the position simulator, and understand my risk very well. I understand that my style is very different from most option traders.
My trading style was not very math-oriented though i understand the model very well. For me, trading options is very similar to playing chess. I act and react. Thats as simple as it.
Now I like to play the chess smarter than i was by incorporating the math model and with the help of all the great option traders here.

 

I use the option888 site to get the info and I believe it is the first measure.
I shorted the options when the iv was high (after the market crashed several weeks ago), and it was priced too high I think compared to the historial vol.
I never looked at those values before, and so I like to know how the market reacts, and how long it takes for it to reverse back to the normal iv.

 

You play simultaneously two games: one with the underlying's price player and one with the options' IV player. Your game time is limited by your options' expiration.

 

Here is an example of a long GOOG DN strangle, comparing theoretical to actual pricing. Comments/corrections welcome.

Regards

 

very nice..thx for the work...given time you can adjust as you point out into a b-fly so there is depth to the strategy.