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For a short volatility strategy using option strangles, is it better to target a fixed premium to earn? Or a fixed vega? Objective is to maximise the return/risk (sharpe) of the strategy.
Any help is much appreciated.
The risk of a short strangle is theoretically infinite, and the max return is fixed (the premium received on the 2 legs). This remains true whether you target max return or max vega.
Generally, when you are short volatility, the 'size' of your position is measured using Vega. You have volatility risk, and that risk is Vega. In fact I am not even sure what it means 'to earn a fixed premium'...
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