macrocephalopod

55/ Of course, ATM options kind of stay around 50 delta as long as spot doesn’t move. So the charmiest options are the ones on the shoulders of the Gaussian. The 25/75 delta options, basically.

56/ VOMMA: d vega / d vol. I didn’t worry much about this one, because I didn’t really trade long-dated options and this is a thing that matters more as t_exp gets bigger. Usually, the way you think about this is “If vol explodes, does my book get bigger or smaller?”

57/ Since we’re good boys and girls and we’re delta hedging, options trading is about trading vol. And vega is the size of your vol bet.

58/ And since IV only really moves fast in one direction (up), vomma tells you the answer to the question “If the world goes crazy, do I now have a massive book on my hands?” Which is something worth knowing, for sure.

59/ D VEGA / D SPOT: I don’t know what this one’s called. But it’s another specific case of d vega / d whatever. And as before, what we care about is “How big/small does my book get if X happens?”

60/ In fact, as you can tell, this is how I think about all of these 2nd order greeks. I’ve never put on a trade thinking “Ooh, I see a vomma mispricing”. I’m sure that’s someone’s job but it never was mine. Thinking about this stuff was always about risk management for me.

61/ But again, usually if you take care of the first-order stuff, you don’t really need to think about the second-order stuff except in weird situations. I think that’s it for second order greeks. Yes I skipped a big one. That’s cuz I have nothing interesting to say about it.

62/ Please don’t think of this as definitive on the subject. It’s just one person’s perspective, given the experiences I’ve had. I’m sure @bennpeifert @ksidiii and others have different (and possibly more informed) views. That’s ok too.