Trading With Dual Vega

by Morris Puma on February 14, 2012

Managing Vega With Dual-Vega Option Spreads

Wouldn't it be nice if you could simple remove the effects of volatility from your option trading?  This is one of the primary goals of all option traders who are educated. But how can we do it?  If we construct an option spread with negative Vega, then we lose when IV rises.  If we construct a spread with positive Vega, we lose when IV falls.

Many advanced option traders try to balance off the effects of the ever-changing IV by creating a portfolio with negative and positive Vega spreads.  But does this really work? Now we have a situation where one trade loses while the other makes money, and they tend to cancel each other out.  By trading this way, most traders end up with a hodgepodge portfolio that is hard to manage and doesn't profit in the long run.

Now, by using a Dual-Vega strategy, such as ones that we teach in our course, you can actually create a single spread that benefits from an IV drop as well as an increase in IV. This is the approach we take to solve this problem.  

Now, instead of employing two strategies which cancel each other's profits out, we can profit from any move in implied volatility.  And the best characteristic of all is that if we face another "Flash Crash", our Dual-Vega strategies will make a profit instead of causing great losses on your account.  It's a wonderful thing to be trading with insurance that is not eating into the profits of your trade.  

Isn't it time you learn to trade with Dual-Vega?  Learn it here at San Jose Options, Inc.