Meet the Option Greeks - Vega
Vega is an option Greek that measures the rate of change in the price of an option relative to a change in volatility. It represents the amount by which the option price is expected to change for a 1% change in the volatility of the underlying asset.
Vega is calculated using mathematical models such as the Black-Scholes model, which consider various factors such as the underlying asset price, time to expiration, volatility, and interest rates. The vega value indicates the expected change in the option price for a 1% change in the volatility of the underlying asset.
For example, if an option has a vega of 0.20, it means that if the volatility of the underlying asset increases by 1%, the option price is expected to increase by $0.20. Vega is an important measure for option traders as it helps them understand the sensitivity of their options positions to changes in volatility. Option traders often use vega to hedge their positions or to trade options in anticipation of changes in volatility.
Vega is calculated using mathematical models such as the Black-Scholes model, which consider various factors such as the underlying asset price, time to expiration, volatility, and interest rates. The vega value indicates the expected change in the option price for a 1% change in the volatility of the underlying asset.
For example, if an option has a vega of 0.20, it means that if the volatility of the underlying asset increases by 1%, the option price is expected to increase by $0.20. Vega is an important measure for option traders as it helps them understand the sensitivity of their options positions to changes in volatility. Option traders often use vega to hedge their positions or to trade options in anticipation of changes in volatility.
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