How do you sell the vega?

Discussion in 'Options' started by Lobster, Aug 31, 2002.

  1. Does anyone have a halfway viable strategy for selling the vega as an off-floor sucker?

    All the complicated spreads like neutered double-winged fruitflies and pregnant ironclad condors sond intriguing in theory, but you can't really do them off-floor, can you?
  2. Yes.
  3. That's a real eye-opener. How could I have been so blind!
  4. well, at least you aren't stuck with a Pinto.
  5. Now, you want me to tell you how to do it; after I already told you you could ...
  6. Pabst


    metooxx, you must be getting lazy in that Bahamian heat. Normally you would have broken that reply down into like 3 separate posts.
  7. Just doing my part to conserve third world bandwidth ...
  8. Pabst


  9. Htrader

    Htrader Guest

    There is a way to sell volatility for the off-floor trader and remain delta neutral, but not gamma neutral so it takes a bit of maintenance. Its called delta hedging, otherwise known as gamma scalping.

    Lets take the basic example of a call option. To delta hedge(which is to go long volatility), you can buy an at the money call option, which has a delta of 0.50. So if you buy 10 calls, then you need to sell 500 shares to be delta neutral. You still have gamma exposure however so as the stock price rises, your delta increases and you must sell more stock to remain delta neutral. If the stock falls, then your delta decreases and you need to buy shares back. So in essence you are buying low and selling high. Done properly this should give you a gain on your delta hedging transactions. The goal is to make enough money doing this to cover the cost of the initial option premium by the time the option expires.

    In order to sell volatility you simply do the opposite of the above. Sell a call(or put) and hedge out your delta exposure. Since you are short delta, you will be buying as the stock price increases and selling as it decreases. Your goal is to lose less money than you gained in premium by selling the option.
  10. LOL.
    #10     Aug 31, 2002