Option Greeks

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Option Greeks

The mathematical elements of the option pricing formula.[/vc_custom_heading][/vc_column][/vc_row][vc_row row_height_percent=”0″ override_padding=”yes” h_padding=”2″ top_padding=”0″ bottom_padding=”2″ overlay_alpha=”50″ gutter_size=”1″ column_width_percent=”100″ shift_y=”0″ z_index=”0″][vc_column column_width_percent=”100″ position_horizontal=”left” gutter_size=”3″ overlay_alpha=”50″ shift_x=”0″ shift_y=”0″ shift_y_down=”0″ z_index=”0″ medium_width=”0″ mobile_width=”0″ width=”1/1″][vc_column_text text_lead=”yes”]https://vimeo.com/498412929[/vc_column_text][vc_column_text text_lead=”yes”]https://vimeo.com/498416580[/vc_column_text][vc_column_text text_lead=”yes”]https://vimeo.com/498412320[/vc_column_text][vc_column_text text_lead=”yes”]


Technically, Vega is a measurement of how much a 1% change in the volatility of the underlying asset affects the time value of an option based on that asset. Let’s say a stock trades at $74 in March and an April $75 call is priced at $3. Let’s further say that the Vega of the option is $0.10 and that the stock’s volatility is 20%.

If the underlying stock’s volatility were to increase 1% to 21%, then the price of the option should increase to $3 + $0.10 = $3.10. On the other hand, if the volatility had reduced by 1% to 19%, then the the option price would drop to $3 – $0.10 = $2.90.

A simpler way of understanding Vega is that this is the mechanism by which the market makers are able to inflate or deflate the value of time.[/vc_column_text][vc_column_text text_lead=”yes”]https://vimeo.com/498445610[/vc_column_text][/vc_column][/vc_row][vc_row row_height_percent=”0″ override_padding=”yes” h_padding=”2″ top_padding=”2″ bottom_padding=”2″ overlay_alpha=”50″ gutter_size=”0″ column_width_percent=”100″ shift_y=”0″ z_index=”0″][vc_column column_width_percent=”100″ gutter_size=”0″ override_padding=”yes” column_padding=”1″ overlay_alpha=”50″ shift_x=”0″ shift_y=”0″ shift_y_down=”0″ z_index=”0″ medium_width=”0″ mobile_width=”0″ width=”1/1″][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][uncode_block id=”4044″][/vc_column][/vc_row][vc_row][vc_column width=”1/1″][vc_empty_space empty_h=”5″][/vc_column][/vc_row]