Vega Multipliers 2 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 useful 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 take a look at the “Flash Crash” of 2010 to demonstrate how IV changes differently on different months.
We also show how Calendar spreads are not as “positive vega” as they appear to be. This is a very interesting class on Vega, of of the Option Greeks, and we really recommend any option trader who takes this seriously to give this Vega class a good watch.
SIGN UP for a FREE live demonstration of our options education course and analytical tools at SJOptions.com
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.
The next day, the front month goes up to 53. So again, it goes from 33 to 53, goes up 20 points in 2 days. The first month out here goes from 32 to 44. So it goes up about 12 points; 32 to 44, about 12 points. So in comparison, the first month goes up 20 points and this goes up 12. So again, it moved up about half. Over here we have almost 33 to 42, almost 43. So this goes up almost 10 points right here. So this one went up 12 to 13 points, this one here’s going up about 9 to 10 and then this one we have 34 to 42. So it’s going up about 8. That is 34 to 42; it’s going up about 8 points. So you can see from this example, the first month here goes up 20 and this goes up 8. This one went up about 9 and this one went up about 10. No, it went up about 12.
So the next step to this would be, we can divide these numbers. So basically, we can have lie a 1 over the 2 or we can take—This one’s close to 2, the Vega Multiplier but basically what we can do is divide this change which was 20 points and divide it by the 12. So, we can go like take the calculator. Twenty divided by 12 and we get 1.6. so we can give this comparison here, if you’re going to make your own table for example, then you would give about a 1.6 or 1.7 to this particular number of days out. The next one here it came with from 38, I mean, almost 33 to 42 and a half, so it’s about 9 and a half or so. So if we went 20 divided by 9.5, we get a 2.1. So you could essentially use about a 2.1 Vega Multiplier for this, for 69 days out. The next one here we have 34 to 42. So we have about 8 points. So, 20 divided by 8 and we get 2.5. For 132 days out, we have a Vega Multiplier of 2.5. Let me write this down but basically we have our first one we just based on one, then we have 1.7, then we have 2.1 and we have 2.5. As long as I repeated myself correctly, like they may have a 1, 1.7, 2.1 and 2.5. So you can quickly see how you can develop a table and you can use this table to identify your true Vega position in a new way, in a way that you may not have thought of before. And again, this is a unique Greek calculation that we have developed here at San Jose Options and we’ve been using this for a while and it’s really nice. It’s just objective, we just take the calculator, we just do the simple math and gives us a more accurate reading of our Vega position. And it’s something that we can use in our daily trading. Whether you’re in or course or not, you might give this a try and see if it kind of relates to what you’re doing.