Vega Question

Discussion in 'Options' started by qazmax, Apr 4, 2006.

  1. cnms2

    cnms2

    What do you want to simulate using Monte Carlo? If you want to determine "ever" probabilities you can use Hoadley's: http://www.hoadley.net/options/barrierprobs.aspx?

    You can visualize and better understand options' sensitivities using this calculator: http://www.ftsweb.com/newfts/opsens.htm
     
    #11     Apr 4, 2006
  2. qazmax

    qazmax

    I really want to see how fast (forgive me for this) and how furious volatility has to change to make the OTM options with a higher net vega more attractive than the ATM options.

    :)
     
    #12     Apr 5, 2006
  3. You should give a real example of potential trade (price , strike(s) , vols and time to exp) , then someone can answer. The vega gain on far OTM might become only a paper profit , because of the bid/ask spread. If a 15 cents call[put] doubles because of vega , what is the actual profit on the 10 cents spread ? Plus the commissions diff on # of contracts(vs. ATM)
     
    #13     Apr 5, 2006
  4. cnms2

    cnms2

    Wherever the pay-off is positive the 10 CUYQH (~ATM) perform better than the 26 CUYQG (OTM). The bottom graph, where the IV increased with 20%, shows that the pay-off is less which means that the OTM performs better.

    The two positions were sized for the same risk of ~$830.

    <img src=http://www.elitetrader.com/vb/attachment.php?s=&postid=1030697>
     
    #14     Apr 5, 2006
  5. qazmax

    qazmax

    I think this is the heart of the argument combined with the much higher net Theta. This is a good explainer for the layman. It is just "faux vega."

    :)
     
    #15     Apr 6, 2006
  6. a bit of subject... I don't use "increase of IV by x%" , going stickily by BP gains. If stock with IV of 30 increases 20% vega gains=600bp , but if stock with IV of 50 increases the same 20% , than vega gain is 100bp. Big difference in PnL. I do miss those days when stocks with IV of 100 use to gain 30% (300bp points) on pre-event vols spike...My profit per long combo is down by half since 2001.
     
    #16     Apr 8, 2006