Vega Multipliers 1 of 6
San Jose Options presents a new concept to the Options Trading Industry called "Vega Multipliers."
We have developed a system to get a more accurate reading on our Vega position and options trading portfolio. It's a fact that Volatility (IV) changes at a different rate across the different expiration months, and it's very important to understand this concept if you want to have more control over your Vega position.
We also show how Calendar spreads are not as "positive vega" as they would appear to be. This is a very interesting class on Vega, the Option Greek, and we recommend any option trader who takes this seriously to give this a good watch.
San Jose Options is the leader in Options Mentoring. Get your Options Education with us, and you will learn faster through our apprenticeship teaching method. We Trade. You Learn.
SIGN UP for a FREE live demonstration of our options education course and analytical tools at SJOptionsTrading.com
Hi everybody! This is Morris Puma from San Jose Options Mentoring. Thank you so much for attending this video and I hope you’ll learn some things that you never knew before.
What we’ll be talking about today is this new concept that we have developed with our mentoring program. We’ve been using this concept over the last year and we’ve been rather happy with it. We call it Vega Multipliers. Basically, what this whole concept is about is it’s a system that we’ve developed to captivate a more accurate, a truer, in Vega position, calculation across the different months of option chain. For example, some traders focus primarily on the first month when they trade options but others trade the second month. Some traders go three months out, four months out and so on. And we just found through our studies that if he go by the Vega, that shown and think or swim across different months, then you’re not getting any accurate reading on your Vega position. So, what we’ve done is we’ve constructed and calculated our own chart and this helped us to determine a truer Vega position for each month. It’s just a great concept. It’s very simple but most traders aren’t aware of this. I’ve never seen this anywhere else. So just feel privileged to be gaining this information and I hope that it can help your trading at some way that it has ours.
So without further ado, I’ll go ahead and get started and just give you some examples of this concept and how you can use it in your personal trading.
So I’ve brought in Think or Swim and what I’ve done is I’ve gone back to May 5th, and this is basically before the flash crash. I brought in the Russell. So we’ll be looking at the Russell and we’ll look at the implied volatility across the different months. As you look over here, you’ll see the May contracts and these are 15 days out from expiration and over we have the average implied volatility and you can see it’s 33.25. Then we have the Junes. Our 43 days out and the average implied volatility is 32.09; the Julys are 32.81 and so on. So, through the Think or Swim software, in their back treater here they call Think Back, we have a quick glance at implied volatility and this is before the flash crash.
What we’re going to illustrate to you right here is how implied volatility is changing at a different rate as we go through time. And what I mean through time is the different days out from expiration. So, let’s take a look. What I’ll do is I’ll advance the calendar one day and we notice the first day, volatility on the front month goes up to 40. So let me go back, you could see that goes from 33 to 40, goes up about 7 points. Let’s compare that to the next month out, goes up from 32 to 35. So you can see, just one month out farther, it goes up 3 points compared to 7. So right here, we can see that this is where we the Vega Multiplier. So you could see that this one is moving about half the speed as this or even less than half. Let’s look at the next month. So again, 71 days out, again we have 32, this goes up to 36. Okay, so this one moved about 4. Okay, 36 goes up about almost 4 points. So this one here moves pretty similar to this one. Okay, this one right here, 134 day out, let’s see how this goes. Thirty-four to 37, again it moved similar. It moved about 3 points, not quite as much ‘cause it moved about 3 points. So let’s look at the next day. So if you recall, there were 2 days where volatility really climbed really fast over this flash crash…
SIGN UP for a FREE live demonstration of our options education course and analytical tools at http://www.sjoptionstrading.com