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Definition of 'Vega Neutral'
A method of managing risk in options trading by establishing a hedge against the implied volatility of the underlying asset. A vega neutral option position will be not be sensitive to volatility fluctuations. These strategies are used to hedge against the risks of price sensitivity, second-order time price sensitivity and time sensitivity, respectively.
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Investopedia explains 'Vega Neutral'
A vega neutral portfolio is still subject to risk. For example, in a portfolio of options maturing at different times, changes in volatility over time can dramatically affect total returns, making the portfolio sensitive to time vega. Furthermore, if the assumptions used to establish a position turn out to be incorrect, a position that is intended to be neutral can actually be risky. Vega is one of the "options Greeks" along with delta, gamma, rho and theta. These are used to measure different types of risk in options portfolios. Other options risk-management positions include delta neutral, gamma neutral and theta neutral.
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Search results for 'Vega Neutral'
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http://www.investopedia.com/articles/optioninvestor/03/041503.asp
... As a rule, it is therefore best to establish short vega delta-neutral positions
when implied volatility is at levels that are in the 90th percentile ranking ...
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http://www.investopedia.com/articles/optioninvestor/02/081902.asp
... strategy, particularly because it can leave you short vega and thus ... see Option Spread
Strategies.) Normal calendar spreads are neutral strategies, involving ...
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http://www.investopedia.com/university/option-greeks/greeks3.asp
... on position Delta will have an impact (unless it is Delta neutral) on the ... reward
dimension exists, usually lurking in the background, which is known as Vega. ...
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http://www.investopedia.com/university/optionspreadstrategies/optionspreads5.asp
... The position Vega of the horizontal time spread constructed by selling the front
month and buying the back month makes these trades problematic for a neutral ...
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http://www.investopedia.com/articles/optioninvestor/10/implied-volatility-calendar-spread.asp
... (Refer to our Option Greeks Tutorial to learn more about theta and vega.). Figure
1: Risk Curves for a neutral calendar spread. Source: Optionetics Platinum. ...
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http://www.investopedia.com/university/option-greeks/greeks2.asp
... see Going Beyond Simple Delta: Understanding Position Delta and Capturing Profits
with Position-Delta Neutral Trading. Next: Options Greeks: Vega Risk and ...
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http://www.investopedia.com/university/optionspreadstrategies/optionspreads1.asp
... This is true for Vega and Theta, as well as the other Greeks, but the implications
of the signs on the values ... Figure 2 - Negative, Positive and Neutral Delta. ...
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http://www.investopedia.com/university/optionspreadstrategies/optionspreads6.asp
... What is interesting about the diagonal, however, is that it may begin at neutral
or slightly position Vega short (typical if a credit is created when putting ...
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http://www.investopedia.com/articles/optioninvestor/03/021403.asp
... The Greeks discusses risk measures such as delta, gamma, theta and vega, which are ...
delta, including an example of what it means to be position-delta neutral. ...
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http://www.investopedia.com/university/option-greeks/greeks1.asp
... Vega is the measure of that risk. ... Some strategies are long volatility and others
are short volatility, while some can be constructed to be neutral volatility. ...
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