Minding Your Options – Is Vega just another Greek?

San Jose Options, Inc. (SJOI) has developed a unique concept. This is the company whose options mentoring program rests on live real-time trading sessions with questions and answers from the viewing audience. This original and very useful concept relates to the Option Greek called Vega. Option Greeks are an integral part of options trading that you must understand if you want to have long-term success in highly competitive options trades.

Option Greek Vega by San Jose Options, Inc.

Experienced options traders know that every asset has many different expiration months. Vega increases as you move farther away from expiration, and on the other hand, implied volatility (IV) moves more slowly as you move farther out in time. It seems logical to aim for a perfect balance between the two relationships, but our studies at SJOI show us that we need a Vega Multiplier in order to calculate accurate readings of our Vega position over the various expiration months.

As one example, during the “Flash Crash” of May 6th, 2010 the near-term option IV increased substantially more than the IV of the months farther out. Further, the amount that implied volatility decreases over time doesn’t completely make up for the amount that Vega increases. In order to get a correct Vega reading on your trades, you first need to multiply your Vega position by a Vega Multiplier.

ThinkOrSwim automated trading-software may depict a Calendar Spread showing a positive Vega at all times. However, after you apply the Vega Multiplier concept, you will sometimes see that Calendar Spreads actually possess negative Vega attributes. Very interesting, don’t you think?

You can also use this multiplier concept to calculate your Vega position on an entire portfolio. A lot of option traders strategically trade several months at the same time. If you like to trade several months at once, then you can calculate truer Vega values for your whole portfolio by using Vega Multipliers. If you understand Vega, then you know how important it is to be able to read your Vega position accurately. Imagine how differently you might react if your software shows you a Vega position of positive 5,000 when a more realistic Vega is actually -500. This can actually happen to you. That’s why we strongly recommend you use the Vega Multiplier concept developed by San Jose Options to prevent this from happening.

Find additional information on option Greeks, Vega, constructing safer trades and more at www.SJOptions.com. Watch SJOI’s complete Vega Multiplier video and start applying this concept in your personal trading today, for a better understanding of how it all works tomorrow. The more you understand, the smarter you’ll tend to trade.

Trade safer! Trade smarter! Visit San Jose Options today for your free Option Trading Video on the Vega Multiplier !