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cgrady40


Total Posts: 1
Joined: Mar 2021
 
Posted: 2021-04-22 12:55
Hello, looking for some help thinking something through-

I am looking to profit from mispriced implied volatility, and am running through scenarios comparing using ATM or OTM options. General theory says that vega will be higher when the option is at the money. However, when I look at vega as a percentage of margin required for the trade, the using OTM seems to give me more vega per dollar of margin.

Am I thinking about this correctly?

ronin


Total Posts: 679
Joined: May 2006
 
Posted: 2021-04-27 09:59
> vega as a percentage of margin required for the trade

I'm not sure margin is a good denominator - margin doesn't self fund. You do the trade today, and tomorrow you have to post more margin.

You would normally look at vega as % of the underlying forward. That's a nice self-funded numeraire that you can work with. Or something like that.

"There is a SIX am?" -- Arthur
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