Option VegaThe option Vega is an option Greek that can be used to determine how much an option will change for every 1 percentage point change in volatility.
If you have an option with a Vega of $.15 then for every 1 point change in the options volatility the option will go up $.15 if the volatility goes up 1 point and it will go down $.15 if volatility goes down $1. Unlike other Greeks the option Vega will always be a positive number because it affects calls and puts the same way. Volatility can make a big difference in the price of an option, so it is important to look at the Vega. This is especially true if volatility is high on the options. If volatility is too high it could signal that option contracts are overpriced. If volatility goes down that means the stock option will also go down in price. In this way you may lose money on a option even if the stock moves in your direction. On the other hand if the volatility it can signal that options are underpriced and as volatility goes up so does the value of the stock option. In this way you may be able to make money on an option because of the volatility even if the stock does not move in your favor. It is important to note that options are still based off of the price of the stock and if the stock makes a big enough move everything else is irrelevant. But it is good to look at this to calculate what you think the price of the option will be and to put all of the odds in your favor. Other Greek Options Using all of the Greek Options together can help you estimate how the option will move in different situations. Here are some more option Greeks to consider. Option Delta - This tells you how much an option moves because of the stock. Option Gamma - This measures the change in the Delta Option Theta - This measures the effect of time value |
