Forums > Basics > Vega neutral calendars

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 Mistro Total Posts: 10 Joined: Aug 2018
 Posted: 2018-10-26 10:35 If I am predicting a steepening/flattening of the vol term structure, should I be putting on Vega neutral calendars to Express my view? men lie, women lie, numbers don't
 day1pnl Total Posts: 53 Joined: Jun 2017
 Posted: 2018-10-27 16:12 well you can always play around with toy examples:Vols increase (+5 vol pts additive shift)Vols increase (*1.1 multiplicative shift)as you can see vega neutral curve position isn't hedged against steepening.
 Strange Total Posts: 1540 Joined: Jun 2004
 Posted: 2018-10-27 16:33 You want to be exposed to steepening, but want to be hedged against the first momentum of the curve, is that right? So the actual question is - do you think the curve moves mostly in a parallel manner? I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'
 Mistro Total Posts: 10 Joined: Aug 2018
 Posted: 2018-10-29 00:21 first momentum = parallel shift?I do believe that the curve moves mostly in parallel shifts. My question may actually be, when should I be using root time-vega flat calendars vs Vega neutral calendars. I did some excel exercises as day1pnl suggestedThere is an obvious trade off here between gamma and vega. When I am vega neutral, I am short a ton of gamma (way over powering vs pnl from vega changes). men lie, women lie, numbers don't
 Strange Total Posts: 1540 Joined: Jun 2004
 Posted: 2018-10-29 06:17 "when should I be using root time-vega flat calendars vs Vega neutral calendars?". If you are trading short-dated options (i.e. something where your primary exposure for each leg is gamma), you want to do them root-time vega flat. It's not a perfect term structure play, but more of a relative risk premium play. You would be short gamma even in a root-time neutral calendar, but hedging yourself with vega. By going down to vega-flat calendar, you are primarily selling gamma and the term-structure exposure becomes a secondary consideration. Once your exposures become primarily vega, you should use vega-neutral calendars instead. E.g. a the limit, if you are trading SPX 5y vs 7y or something like that, you should probably do them vega neutral, since gamma P&L contribution is going to be negligible. I don't interest myself in 'why?'. I think more often in terms of 'when?'...sometimes 'where?'. And always how much?'
 Jurassic Total Posts: 208 Joined: Mar 2018
 Posted: 2018-11-02 00:01 @Strange Im clearly missing something but why is gamma related to root time vega?
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