Wednesday, April 21, 2010

[TheOptionClub.com] How do you manage your Vega?

 

Hi Michael C.,

[ tPreston ] - Do floor traders use vol in their daily trades? "Some floor traders do, others don't but all professionals keep an eye on volatility."
. . .
Recently, you made this comment -
[ M ] - "...the key is to focus on... : changes in volatility and changes in price
 direction. "

[ Questions ] -
IV/Vega – This is one area I am still struggling. Delta, Theta, Gamma – these are 'visible' in my radar, but Vega is, often times, neglected as part of my check list in trade adjustment.

I can understand your criteria of 1.5SD in change in price in underlying that warrants an adjustment.
What is your criteria with regards to changes in volatility?

How do you keep volatility in focus in your trade adjustment?
As IV changes, what kind of values that nudge you to trade short/long Vega?
Can you give an example in your trade adjustment that will help us understand your thinking process in managing Vega?
Especially when it comes a multi-strike position after you have executed a series of adjustments.

Paper Trade? -
If your time allows, could you help us with a paper trade to illustrate your point.
Perhaps, using your favorite underlying, besides GOOG - :)
GS?

Thanks for sharing.

Best regards,
Sam

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