Vega of Calendar Spread

Quantitative Finance Level 1

You are long the ATM straddle expiring in 3 days, and short the ATM straddle expiring in 3 months. Do you expect to long or short vega?

Long vega, the short term straddle has more vega. Short vega, the long term straddle has more vega Vega neutral, straddles have constant vega Vega neutral, the sum of option positions is 0

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Calvin Lin by Calvin Lin

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1 solution

Chew-Seong Cheong
Mar 22, 2015

The higher the time premium values, the higher Vega values. Therefore, the short ATM straddle expiring in 3 months has more vega value.

0 Helpful 0 Interesting 0 Brilliant 1 Confused

Not quite. Higher time premium values doesn't necessarily imply a higher vega value.
There is some correlation when the time to expiry is fixed, but not across different expiries.

Calvin Lin Staff - 6 years, 2 months ago

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