Trade Relationship: Theta & Vega | Options Trading Concepts
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Recently I was concerned my Vega was too high. Now I see that my T/V ratio is in great proportion. This really helped. Thank you
If theta (our friend as option sellers) is greater in short-term options, and vega (our enemy) increases as we add time to the option, why wouldn't very short-dated options (i.e., one week) be superior to 45 DTE options?
so T/V ratio is .50 is a good thing for an exp date at 13 days?
Thanks for this great video
so would negitive theta for a put would be a good thing or a bad thing?
Hi, Talking about > 20% for optimal TV ratio, it's referring to short options only? And OTM options only?
Vince,
Generally yes - much of our strategy revolves around selling OTM/ATM options, and that is what the study was referring to.
Hello, do I have to use the absolute value of the T/V ratio ? because my vega is negative and my theta is positive, how should I use the ratio in that case ?
hmmm sounds like a temporary situation created by spreads that may be ITM/OTM. I wouldn't over-emphasize this either way - just be comfortable with the risk with each position and adjust as you see fit.
@@tastyliveshow So does it mean the formula can't be applied if theta is positive and vega negative please ? great thanks!
I DON'T quite understand. If for example I place a calendar spread, then do I want the T/V ratio of my short to be between 20 and 30, but the T/V ratio of my long to be a much lower than 20?
If you're placing a calendar spread then it gets more complex because the different expirations offer different metrics - With a calendar spread we're more focused on keeping the IV% between the two expirations very close, and looking for the overall IV to expand. Calendar spreads will be positive theta and positive vega upon setup.
Great video ...one help required ... For weekly n monthly options TV ratio is near to 1 and above for many strike price so in this scenario how should we select appropriate strike price to sell and gain maximum ....is their anything else to look for.... Thanks in advance for reply
The next indicator we look at is risk:reward - how much buying power does a trade require and how much premium are we collecting? How far away do we want to be from the stock price? Plenty of other factors that will help you make a decision.
When short a call, delta and vega are negative, so if volatility increases, vega will hurt you but negative delta helps. 1. Which is more powerful if short call is -30delta or vega?So shorting puts arguably worse because if volatility increases,having both negative vega and positive Delta in your short put, would hurt you? Please comment'
In the short term, puts are more volatile P/L wise because of this delta/vega relationship, but if held to expiration they behave the same.
If the underlying was in high IV percentile from range 70% - 100%. Most of these underlying T/V Ratio is achieve greater than 30% am I correct?