Green Investing Today

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.

If you already trade options, you know that every asset has a variety of different expiration months. For the sake of a good example I’m going to focus on the Russell 2000 (RUT). The farther out we move from expiration, the more Vega increases. At the same, implied volatility (IV) moves more slowly the farther out in time we go. You might think that a perfect balance between the two relationships would be most desirable. Our live-market studies indicate, however, that we need to apply a Vega Multiplier in order to get accurate readings of our Vega position across the different 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.

A calendar spread in the software indicates a positive Vega all the time. When you apply the Vega Multiplier concept, though, you see there are times that calendar spreads actually contain some negative Vega attributes. This makes for an extremely interesting study.

Imagine if your software shows you a Vega position of positive 5,000 when a far more realistic Vega is actually -500. When you don’t use the Vega Multiplier concept developed by San Jose Options, this actually can and does happen to you. Many option traders adopt a strategy of trading several months at one time. These traders can calculate a truer, more accurate Vega value for their whole portfolio by using Vega Multipliers. If you understand Vega, then you already know how critically important it is to be able to read your Vega position correctly.

For more information about option Greeks and especially Vega, please visit www.SJOptions.com for more information. Watch the Vega Multiplier video in its entirety and put this concept to use in your personal trading for a better understanding of how it all works.

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