Details

Vega Multipliers Part 6 of 6

Part 6 of the Vega Multiplier ™ Series - A unique concept developed by San Jose Options.

Learn one of the unique concepts developed and taught by San Jose Options Mentoring in this 36 minute class.

By understanding our "Vega Multiplier" concept, you'll be able to more accurately calculate the Vega position on any trade or on your whole option trading portfolio. This is a very important concept to comprehend and we highly recommend watching this Free class.

We have developed a system to get a more accurate reading on our Vega position and options trading portfolio. The fact is 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 when you are working with options.

We also show how Calendar spreads are not as "Positive Vega" as they 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 or two.

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

Vega Multipliers 6 of 6

Video Transcript

You know, I hope this really helps you understand how to reach a Vega position and how to position your portfolio in a way it’s going to be more accurate because, I’ll show you right now that this Vega position is actually negative. Check this out.

Let’s come over here and let’s look at this one. What we’re looking at here, I had cost but I just changed it. So here we have the prints and we’re looking at December 10, 725 which is right here and the Vega position is 0.76. So go ahead and write that down, we have 0.76. Now, this Vega Multiplier is about a 1.1, it’s close to expiration so I’ll take the 0.76 divide it by 1.1 and I get 0.69. So, my Vega position, you know, this relative, more of a realistic approach to Vega on this particular strike, is 0.69. Let’s find the next, let’s find the January. January we have the 725 strike and the Vega position is 1.17. So, 1.17 and my Vega Multiplier, this trade is out 59 days, it’s 1.7, so my Vega Multiplier is 1.7. This one here, we have the 725 to 1.7, our Vega Multiplier is 1.7, we did the math there. We get the realistic Vega on this trade, on this strike is actually 0.688, it’s almost 0.69. That’s 0.68 and remember on the first strike, it’s 0.69. What does that tell us? It’s almost a flat Vega position. It’s slightly negative.

So we come over here and the software shows us Vega on this calendar is 414 but I just showed you that the Vega position is actually close to neutral or a little bit negative. And that is just based on the flash crash and the crash of 2008. I think this is really exciting and again I’m so excited to be part of this because I just feel a lot of these concepts that we developed at San Jose Options are concepts that people will begin to use. And I can see 10 years from now or 20 years from now, people are going to be using our formulas and it’s pretty exciting because I’ve never seen these things before. But I really think the Vega Multiplier concept will catch on and it’s something that I’ve been using myself and it’s great. I love that I just have this table here, I just pull up a calculator, do a little math and then it helps me understand how my Vega position really is. For those that are using calendars and let’s say you have your portfolios negative Vega because a lot of people will try to combine like a condor. They might have like this and put that there and think that that calendar’s adding positive Vega when it’s not. It’s just adding neutral Vega in this case. Sometimes the calculation will come out positive, sometimes it will be negative but calendars aren’t near as positive Vega as you think. We look at this position right now combined and we see that it’s 274 because this calendar here, it’s adding all this positive Vega but in reality, it’s not changing the Vega and you’re Vega is still negative on that trade.

I hope you can see the brilliance in this and just the importance of it. I do think it’s kind of brilliant but I— It’s just important, it’s really important because it can help you. You see a Vega position in a totally different light than you were looking at it before and it can really help your trading because—Right now, the way you’re looking at Vega is probably not so accurate and you wonder why things are happening when they shouldn’t be. You’re wondering why volatility might be rising and your calendar’s not making money. It’s going to answer a lot of these questions for you by understanding this concept.

I guess I’ll just end it there. I hope you guys learned something useful and something different in this video.