How to Calculate Options Prices and Their Greeks: Exploring the Black Scholes Model from Delta to Vega (The Wiley Finance Series) by Ursone Pierino

Author:Ursone, Pierino [Ursone, Pierino]
Language: eng
Format: mobi
ISBN: 9781119011637
Publisher: Wiley
Published: 2015-04-12T23:00:00+00:00

Chart 9.1 Vega distribution

When a trader reports that he is short vega, it means that he has a portfolio with a negative vega, implying that he is short options in general. He will be long vega when being long options in general (There is an exception; in a portfolio with positions in multiple strikes and/or multiple maturities it could happen that a trader is net long options, however short vega. This is a result of either horizontal spreads, time spreads or a combination of the two).

When the vega position/portfolio is stable along a range in the underlying, computing the resulting P&L from a change in volatility is fairly simple. The result will be the change in the market volatility times the vega position, being impacted by that change, as shown in Table 9.2.

Table 9.1 The vega distribution in values from the 36 to 72 strike, Future at 50.00, Volatility 10% and Maturity 1 year

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