← AdvancedLesson 11 · 4:11
Weighted vega: why raw vega lies
Summary
You can explain why the same raw vega means different risk at different expiries, and work out weighted vega with the square root of 30 over the days left. You can spot a book that looks flat on raw vega but is short volatility once weighted.
Key terms
- raw vega
- Vega added up as if every expiry's volatility moved by the same number of points.
- weighted vega
- Vega multiplied by the square root of 30 over the days left, so expiries are compared on the same footing.
Check yourself
Answer each question to see why the right answer is right.
1. What does vega tell you?
2. From mid-July to early August 2024, the VIX rose about 25 points, the August future almost 18 and the March future about 5. What does raw vega wrongly assume?
3. Using the lesson's convention, what is the weight on the 7-day put's vega?
4. You sell 18 of the 7-day puts and buy 5 of the 90-day puts. Raw vega nets to minus 71 cents. What does weighted vega say?
5. Replaying the summer of 2024 through that book, the 18 sold puts lose $1,766 and the 5 bought puts gain $963. What does that show?
Finished the video and the quiz? .