Straddle vs strangle - Vega
Quantitative Finance
Level
1
The stock is currently trading at 30. Which option strategy has the most (positive) vega?
The options all have the same expiry date.
Short straddle on the 30 strike
Long the 28-32 strangle
Long straddle on the 30 strike
Short the 28-32 strangle
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1 solution
Since options have vega, you want to buy options instead of sell them.
The ATM options have the most vega.
Hence, you want to buy the straddle, instead of the strangle.