1
$\begingroup$

It's written in a book by Giles Hewitt : " The bid-offer spread quoted on a Strangle in volatility terms will usually be wider than the ATM spread to the same maturity because strikes away from the ATM have less Vega". link

Vega is sensitivity of option price to volatility. Why should Vega affect the vol spread?

$\endgroup$
  • $\begingroup$ @alex C Thank you for adding the link. $\endgroup$ – Ussu Oct 13 at 16:44
  • $\begingroup$ I think the paper is implying that if the bid offer of the strangle in premium terms is similar to the ATM, then it will be a wider bid offer in volatility terms. $\endgroup$ – dm63 Oct 13 at 23:22
  • $\begingroup$ Yes, it's a fair deduction. Thanks. $\endgroup$ – Ussu Oct 14 at 4:45

Your Answer

By clicking “Post Your Answer”, you agree to our terms of service, privacy policy and cookie policy

Browse other questions tagged or ask your own question.