Module 5   Introduction to Options Trading (Video Series)Chapter 10

Vega

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10.1 – Vega of an Option

So far, in the series, we’ve learned about three option greeks—delta, gamma and theta. In this video, we’ll discuss vega—the fourth and final greek.

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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

  1. Historical Volatility is measured by the closing prices of the stock/index
  2. Forecasted Volatility is forecasted by volatility forecasting models
  3. Implied Volatility represents the market participants’ expectation of volatility
  4. India VIX represents the implied volatility over the next 30 days period
  5. Vega measures the rate of change of premium with respect to change in volatility
  6. All options increase in premium when volatility increases
  7. The effect of volatility is highest when there are more days left for expiry

8 comments

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  1. Ajeem says:

    Delta 0.5 Gamma -0.5 theta.0.0006 Vega 0.15 totally values consider after buying or selling

  2. Rahul Naidu says:

    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?

  3. Rahul Chaudhary says:

    Hi, considering the past years experience, what’s the probability that near union budget IV (Implied Volatility) will shoot up??

    • Karthik Rangappa says:

      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.

  4. Alok says:

    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

    • Karthik Rangappa says:

      I’d suggest you read the last chapter in this module, where I’ve discussed this particular topic on P&L.

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