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Put Ratios and Trading Volatility

Higher Order Greeks, Options Greeks, Trading Volatility by admin

 

Internal Greeks are not always volatility-compatible.  This is a good class on volatility trading, which is essential education for all traders who seek long-term success with options.  To master volatility trading you have to understand Vega and how to manage it with Vomma and Vanna.  We look at the put front ratio spread for a net credit, which is an example of a trade structure that’s designed fundamentally incorrectly relative volatility behavior.

At first glance, the ATM put ratio appears to be an excellent trade setup, so we dive deeper into how its engine actually runs.  Is the risk really worth the $1,200 credit?  Find out in this deep analysis of its vega Greek structure.

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