Explained to a learner in my DMs who underestimates the vega risk of a near dated option:
It's true that the near term option's vega is not large. But that is counterbalanced by the fact that near term IVs move faster (ie are more volatility then longer term IVs)
A 1 month ATM option has 1/2 the vega of a 4 month option.
But if the 1 month IV is twice as volatile it's the same vega risk.
Need to consider vega and the vol of vol.
(This is a doorway to a whole discussion about term structure and vega scaling but I'm not running down that stuff anytime soon...maybe @AgustinLebron3, @Ksidiii, or @volmagorov can thread one while sitting on a toilet)
If you presume that vol changes across the curve move in proportion to 1/sqrt(t) the value of calendar straddle spreads stays constant.
Your vega risk is equivalent across the curve in such a regime/model
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When I was a Susq I heard Jeff speak a few times. Always engaging.
They were savage in my days there but the doubling down on tech and brains thru the years probably makes Jeff the richest dude in the world you never heard of (unless you look at pol donations, then you know)
One of the talks was on the primacy of markets (Yass is an extreme libertarian, free-marketer, no fool should be allowed to keep their money type. Appealing views to many traders, esp when they are young)
Delta hedging is a trade-off between transaction costs (direct+slippage) and risk reduction.
When you compute realized volatility you choose a sampling period, say close-to-close.
You can think of your delta hedges as samples.
If you and I delta hedge at different prices we are sampling different volatilities. C-C vol might not even correlate with our samples.
So everyone's lived experience of their attempted "market neutral" is different based on how their sampled vol compared with the implied.
This is why delta hedging is bedeviling.
It is the link between the implied vols you trade at and the subsequent p/l you realize regardless of what some objective measure of realized spits out.
Multiple people have reached out for the link to the house...dm if you want. Treehouse, bocce, heated pool, sauna, vineyard, sleeps 5 families, 3 acres.
I agree strongly with all the reviews...pics don't capture the expanse and beauty of the property.
Cousins get togethers always come with math puzzles to work on. The last 2 days we used questions from the 2nd Graders Berkeley Math Circle curriculum.
With the ages 4-11 we emphasize kids working independently on the problems at first...
The kids who get the answers first show their work to an adult separately and "present the solution" requiring them to explain themselves well. Once all the kids are done or give up, the "right" kids need to guide the others until they can explain it to an adult themselves.
The puzzles we did this am
1. You have 4 coins but one of them is fake and weighs more or less than the others. You have 2 weighings on a balance scale.