Long Vega, and neutral to everything else

Discussion in 'Options' started by johnshepherd59, Sep 1, 2012.

  1. Is it possible to create a position that gains when Implied volatility increases, but is unaffected by delta, gamma and theta?
    Thanks in advance.
  2. sle


    Yes, a forward vol position will do it for you - e.g. via a theta-neutral calendar. It is still going to have negative expectation on average, because of the term structure effects.

    If all you care is SPX vega, you should just buy a VIX futures and delta-hedge it.
  3. marameo


    I am sorry, I am new to this; delta hedge it with what?
  4. sle


    SPX, of course - either SPYs or ES futures.
  5. marameo


    I have seen that VIX futures are in contango >80% of the time. So, dealing with short term contracts might turn out to be really difficult, being either long or short! Time decay is going to affect my long position whereas a (sudden) raise in volatility will destroy short positions.

    Do you think it would be safer to move to longer term maturities? A raise in volatility will indeed shift up all the curve (I can't imagine the degree, though) while time decay should affect less compared to short term maturities.

    Not to mention, way longer maturities...

    I take it that long term straddles and long term vix futures share this strong likeness, in that, flat gamma/theta, correct?
  6. sle


    It's either a slow bleed or a bullet to the head. Welcome to volatility trading! :D
  7. I guess you expect Volatility to go up shortly and want to be long it. Here is a position from my portfolio:

    Long VXX Dec 10
    Short VXX Dec 15

    Many variations available...can be done from any options enabled account.
  8. marameo


    So, is that basically what vol.arb is all about?

    What do vol.arb traders/funds usually prefer? slow bleed?

    Now, those 2016 straddles suddenly make sense to me!
  9. marameo


    Also, as far as vol.arb is concerned, I often hear of terms like relative value, dispersion trades and directional volatility; while I think I understand the latter, I dunno anything about the first and secondo.

    Could anyone provide me with some clue?

  10. One of the ways to trade vega only (well, almost only) is to buy a LEAP SPY put deep OTM. E.g. Jan 14 100. It moves mostly when SPY IV rises or falls. Delta is close to .1 and theta is negligible.
    #10     Sep 1, 2012