Chapter 37: How Volatility Affects Popular Strategies 
POSITION VEGA 
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As can be done with delta or with any other of the partial derivatives of the model, 
one can compute a position vega - the vega of an entire position. The position vega 
is determined by multiplying the individual option vegas by the quantity of options 
bought or sold. The "position vega" is merely the quantity of options held, times the 
vega, times the shares per options ( which is normally 100). 
Example: Using a simple call spread as an example, assume the following prices 
exist: 
Security Position Vega Position Vego 
XYZ Stock No position 
XYZ July 50 call Long 3 calls 0.098 +0.294 
XYZ July 70 call Short 5 calls 0.076 -0.380 
Net Position Vega: -0.086 
This concept is very important to a volatility trader, for it tells him if he has con­
structed a position that is going to behave in the manner he expects. For example, 
suppose that one identifies expensive options, and he figures that implied volatility 
will decrease, eventually becoming more in line with its historical norms. Then he 
would want to construct a position with a negative position vega. A negative position 
vega indicates that the position will profit if implied volatility decreases. Conversely, 
a buyer of volatility - one who identifies some underpriced situation - would want to 
construct a position with a positive position vega, for such a position will profit if 
implied volatility rises. In either case, other factors such as delta, time to expiration, 
and so forth will have an effect on the position's actual dollar profit, but the concept 
of position vega is still important to a volatility trader. It does no good to identify 
cheap options, for example, and then establish some strange spread with a negative 
position vega. Such a construct would be at odds with one's intended purpose - in 
this case, buying cheap options. 
OUTRIGHT OPTION PURCHASES AND SALES 
Let us now begin to investigate the affects of implied volatility on various strategies, 
beginning with the simplest strategy of all - the outright option purchase. It was 
already shown that implied volatility affects the price of an individual call or put in a