Vega measures the change of the option value whenmoves up by 1%.
Different strategies we employ have different vega values, but most of them are short volatility trades.
What strategy would be optimal if we wanted to get short the most volatility with the least amount of risk?Study
- SPY, 45 DTE
- of P/L
We find that with higherstrangles, we get higher opportunity from vega, but also higher risk (SD of P/L). Additionally, it seems that no matter how wide our strikes are, the amount of vega we are short per unit of risk we take on is the exact same. This suggests that opportunity and risk are priced efficiently.