Is a Long Straddle a Positive or Negative Vega Position?
A long straddle is a positive Vega position. A long straddle involves simultaneously buying an ATM call and an ATM put with the same strike and expiration.
Since a long option position always has positive Vega, a long straddle benefits from an increase in implied volatility. An increase in IV will increase the value of both the call and the put, increasing the total premium of the straddle.
Glossar
Long Straddle
Structure ⎊ This strategy involves the simultaneous purchase of an at-the-money call and an at-the-money put option on the same underlying crypto derivative.
Negative Vega
Exposure ⎊ Negative Vega describes an options position where the value decreases as implied volatility rises.
Maximum Profit and Loss
Definition ⎊ Maximum profit and loss define the upper and lower bounds of potential returns for an options trading strategy.
Positive Vega
Volatility ⎊ Positive Vega describes an options position where the value increases as implied volatility rises.
Straddle
Strategy ⎊ A straddle is an options trading strategy involving the simultaneous purchase or sale of both a call option and a put option on the same underlying asset.
Long Straddle Benefits
Benefit ⎊ The primary benefit of a long straddle strategy is its ability to generate profit from significant price movements in either direction, capitalizing on high volatility.