So last time we talked about why longer term vega might not give you a lift with the VIX. So what about trying to catch the VIX with closer volatility using a 1 month calendar spread (June/July). Once again you might find yourself slightly frustrated. So lets take a look at the second dimension of the volatility skew to see why. The Second Dimension The second dimension of the volatility skew…
Wednesday, May 7, 2008
As you probably know, iron condors are short Vega – which represents your position’s sensitivity to shifts in implied volatility. In a relatively low volatility environment, this can be troublesome when suddenly volatility spikes and your iron condors suffer as a result. So let’s say you add some Vega to your portfolio by buying some 4 month calendars (ex: June/October) to hedge against an expected volatility pop. You now have a net Vega position of 100, your Delta is flat…
Friday, May 9, 2008
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