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training_data/curated/text/ce65182209997603219824ad3c4d4c0040ab82bff100aab9bf92121041e262bd.txt

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+The Big V
+Gamma and theta are not alone in the straddle buyer’s thoughts. Vega is a
+major consideration for a straddle buyer, as well. In a straddle, there are two
+long options of the same strike, which means double the vega risk of a
+single-leg trade at that strike. With no short options in this spread, the
+implied-volatility exposure is concentrated. For example, if the call has a
+vega of 0.05, the put’s vega at that same strike will also be about 0.05. This
+means that buying one straddle gives the trader exposure of around 10 cents
+per implied volatility (IV) point. If IV rises by one point, the trader makes
+$10 per one-lot straddle, $20 for two points, and so on. If IV falls one point,
+the trader loses $10 per straddle, $20 for two points, and so on. Traders who
+want maximum positive exposure to volatility find it in long straddles.
+This strategy is a prime example of the marriage of implied and realized
+volatility. Traders who buy straddles because they are bullish on realized
+volatility will also have bullish positions in implied volatility—like it or
+not. With this in mind, traders must take care to buy gamma via a straddle
+that it is not too expensive in terms of the implied volatility. A winning
+gamma trade can quickly become a loser because of implied volatility.
+Likewise, traders buying straddles to speculate on an increase in implied
+volatility must take the theta risk of the trade very seriously. Time can eat
+away all a trade’s vega profits and more. Realized and implied exposure go
+hand in hand.
+The relationship between gamma and vega depends on, among other
+things, the time to expiration. Traders have some control over the amount of
+gamma relative to the amount of vega by choosing which expiration month
+to trade. The shorter the time until expiration, the higher the gammas and
+the lower the vegas of ATM options. Gamma traders may be better served
+by buying short-term contracts that coincide with the period of perceived
+high stock volatility.
+If the intent of the straddle is to profit from vega, the choice of the month
+to trade depends on which month’s volatility is perceived to be too high or
+too low. If, for example, the front-month IV looks low compared with
+historical IV, current and historical realized volatility, and the expected
+future volatility, but the back months’ IVs are higher and more in line with
+these other metrics, there would be no point in buying the back-month