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We recommend reading this chapter on Varsity to learn more and understand the concepts in-depth.
Key takeaways from this chapter
- Historical Volatility is measured by the closing prices of the stock/index
- Forecasted Volatility is forecasted by volatility forecasting models
- Implied Volatility represents the market participants’ expectation of volatility
- India VIX represents the implied volatility over the next 30 days period
- Vega measures the rate of change of premium with respect to change in volatility
- All options increase in premium when volatility increases
- The effect of volatility is highest when there are more days left for expiry
Delta 0.5 Gamma -0.5 theta.0.0006 Vega 0.15 totally values consider after buying or selling
You can look at it either when buying or selling, Ajeem.
Is the premium for an option solely driven by option greeks? Does demand and supply also play a role in determining the premium? If so how do they exactly fit into the equation?
Greeks + demand + supply. All these factors matter in pricing an option.
Hi, considering the past years experience, what’s the probability that near union budget IV (Implied Volatility) will shoot up??
By the year, elections are becoming a non-event unless there is an absolute googly by the Fin Minister. That said, there will be some spike in volatility.
Sir I am new to options trading, I didn’t understood that whenever there is a change in premium either due to expiry or volatility change, how does it affects my profit or loss, for eg if I am an option buyer, and there is a change in premium amount after initiating the trade , how will it affect my profit /loss
I’d suggest you read the last chapter in this module, where I’ve discussed this particular topic on P&L.
Like option with stocks as underlying asset .stocks are given at expiry as per contract. Then what is underlying asset given to buyer at that price at expiry
The stocks are debited from a call option seller and credited to the call option buyer. Likewise, stocks are debited from Put option buyer and credited to the put option buyer. Do check our chapter on physical settlement of options.