Vega Neutral

Filed Under » , ,
Dictionary Says

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.
Investopedia Says

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.

Articles Of Interest

  1.

    An Introduction To Gamma-Delta Neutral Option Spreads

    Find the middle ground between conservative and high-risk option strategies.

  2. Getting To Know The "Greeks"

    Understanding price influences on options positions requires learning about delta, theta, vega and gamma.

  3. Options Trading Strategies: Understanding Position Delta

    Learn more about the position delta hedge ratio and how it can tell you the number of contracts needed to hedge a position in the underlying asset.

  4. Using "The Greeks" To Understand Options

    These risk-exposure measurements help traders detect how sensitive a specific trade is to price, volatility and time decay.

  5. 6 Asset Allocation Strategies That Work

    Your portfolio's asset mix is a key factor in whether it's profitable. Find out how to get this delicate balance right.

  6. American Vs. European Options

    These two options have many similar characteristics, but it's the differences that are important.

  7. Pay Attention To The Proxy Statement

    Don't overlook this overview of a company's well-being.

  8. How Risk Free Is The Risk-Free Rate Of Return?

    This rate is rarely questioned - unless the economy falls into disarray.

  9. Shopping For A Financial Advisor

    Finding your perfect advisor is as simple as shopping for a car. Read on to learn more.

  10. Nobel Winners Are Economic Prizes

    Before you try to profit from their theories, you should learn about the creators themselves.
comments powered by Disqus
Marketplace
Hot Definitions

  1. Network Effect

    A phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example...

  2. Racketeering

    Racketeering refers to criminal activity that is performed to benefit an organization such as a crime syndicate. Examples of racketeering activity include...

  3. Lawful Money

    Any form of currency issued by the United States Treasury and not the Federal Reserve System, including gold and silver coins, Treasury notes, and Treasury bonds. Lawful money stands in contrast to fiat money, to which the government assigns value although it has no intrinsic value of its own and is not backed by reserves.

  4. Fast Market Rule

    A rule in the United Kingdom that permits market makers to trade outside quoted ranges, when an exchange determines that market movements are so sharp that quotes cannot be kept current.

  5. Absorption Rate

    The rate at which available homes are sold in a specific real estate market during a given time period.

  6. Yellow Sheets

    A United States bulletin that provides updated bid and ask prices as well as other information on over-the-counter (OTC) corporate bonds...
Trading Center