The Vega of an option indicates how much, theoretically at least, the price of the option will change as the volatility of the underlying asset changes. Vega is quoted to show the theoretical price change for every 1 percentage point change in volatility. Notice that the behaviour of an option Vega is similar to Gamma: increasing as the option moves from being in-the-money to at-the-money where it reaches its peak and then decreases as the option moves out-of-the-money. Hi Josh, apoligies for the delay - this one slipped through the cracks. To buy Vega or go long Vega means to be betting that volatility will increase irrespective of the direction of the asset. October will lose from a rise in IV while December will benefit. In your case, even though your total Vega was positive the front month had a large increase in IV that caused your position to lose money. Perhaps your TOS screen has a different risk value that you could use. Maybe a "Time Weighted Vega" column exists that you could use? Dear Peter, from your answer :" What you have is a spread where one leg benefits OCtober from a rise in IV where the other leg December loses from the rise in IV. But my net Vega is positif it mean my long term Vega is bigger than my short term Vegaso if IV increase, in this posisition, I will have some gain, but in my real accountit become loss, so I said before that the Vega works opposit from theory. This loses, is not combine with gain from increase at underlying and gain from time decey yet, if I combine togather, it means the loss form Vega is huge percentage. So until now, I still confused, how come Vega works seems reverse from theory. If digital are long volatility long Vega and the IV rises this will have a positive effect on your position. However, if you are short Vega and IV rises this will be negative for your position. What you have is a spread where one leg benefits OCtober from a rise in IV where the other leg December loses from the rise in IV. Hi Peter, Thank you for your fast reply. HereI copy the answer of my similar question, but honesly I still confuse about the thier answer : from other web "with a calendar you are either buying or selling vega; when you buy a calendar, you are selling front month and buying back month, so you are selling vega, you expect vega to go down; you are selling vega to capture the higher premium, then buying vega back after it drops; here IV has increased so it has gone against you so far " Peter, how do you think about this asnwer? If so, this is not correct. For your second question - it depends on your view of volatility. If you believe that the volatility is low and expect it to rise, then yes, buying options long Vega is a reasonable play. Even better is if the volatility is low before earnings rather than after. Dear Peter, Thank you for your explanation, even I cannot get it clearly, it may cause by my English. At your table, the Vega value is depand on contrack term, I agree with that, but at last colom, the IVI think IV doent depend on contrack term. The IV for long term contrack or short term contrack, is same. The IV for today, is same IV for all contrack, even long term or short them. Peter, how about my second question : If we buy an option with positif vega big value of Vegait is better we buy at lower IV said few days after earnings? It it true of not? Thanks for asking digital question btw - it will serve as great value for other readers. Hopefully I can explain it properly. However, as you mentioned you are looking at the Vega of your spread position, which will be the October Vega less the December Vega. So, digital I think has happened is that volatility has increased for both October and December, however, October has increased by more, which is why you have realised a loss. So I guess the point is that when dealing with calendar spreads you have to be careful when looking at total spread IV when determining risk. Does this make sense? Dear Peter, The value of Delta, Thetha and Vega, I meantion before is net Delta, Net Thetha and net Vega, because I bought CALENDER STRATEGIS Multy Legs I get these value Net Delta, Thetha and Vega From TOS Think or Swima broker of America. I also get The IV Impled Volatility also from TOS, my trading is real account. In other words, if the Vega Posiftifwith big value, we should buy the option, when the IV is at lower lever? Peter, so sorry if my english is not good, because English is not my mother tongue. Could you answer my 2 question above? Because I trascation in option in big amount, but I am not sure about the VEGA. For Others like Delta, Gamma, Thetha, Rho I can understand cleary, but Vega I am not sure,because I already try at my real account, but VEGA works opposite from the theory. Rgds, Harsono Hi Harsono, I see now. I think the confusion is likely to be related to the volatility. Typically the back months have higher implied volatilities as the markets are less certain as time increases expcept if the market is unusually volatility where traders might expect future volatility to come off current levels. So it could just be that the back month option IV has dopped while the front month has risen netting out to be a decrease in overall IV for the spread. The price of this posisition should have some gain? Because the Delta is Positif, and the underlaying is increasethe Theta is positif, it means I should get some time decay value, and also the Vega is positif, The IV increse 1. But in actual tradingwhy my posisition of this underlying GOOG become loss? Also, the Theta for an outright long option will be negative. So is the price the total combo price or one of the legs? Dear Peter, Thank you for your explanation. However, the option price should be more than? Harsono Hi Harsono, A negative Vega means that the value of your long position will decrease if the volatility of your position increases. And I should buy at this strategic butterflywhen the IV at low lever or high lever? Hi Vega, I think the shape of the vega is consistent vega the shape of volatility curve. Hi, I have the same question as someone ask as above. Whey is vega has a bell-curve shape. I assume the the vega should be different for in-the-money and out-of-money options? The symmetrical comment below was in reference to the fact that Vega is the same value for calls and puts. I agree that the Vega values for OTM options will have a larger percentage increase on their prices than for ITM options, however, the call values for Vega does indeed taper off either side of ATM to shape a bell type curve. Considering, when the option is out of the money, the volatility increasing represents a higher chance of the option paying out money at the end of the day. When its in the money, the option is already most likely going to pay out money, so an increase in volatility option potentially change the price as much. Vega estimates how much an option will gain or lose in value as the volatility of the underlying asset changes. It is useful to be able to measure the amount of option your portfolio has in relation to swings in volatility. What is the Vega of an option and why is it useful? Discuss the steps you would undertake to make a portfolio Vega neutral? The option is "based" on an underlying, which can be a stock. Hi, can anyone explain me why the vega of the underlying is 0? Thanks in advance Do vega mean forecasting volatility? Hi Pankaj, Vega is always positive for calls call puts for both European and American options. This is because an increase in volatility always increases the theoretical value of an option - call or put. Hi Damola, check out the option greeks overview page first and let me know if you have any follow up questions. Notice that the behaviour of an option Vega is similar to Option increasing as the option moves from being in-the-money to at-the-money where it reaches its peak and then decreases as the option moves out-of-the-money Note: like the Gamma, Vega is the same value for calls and puts Option Pricing Option Workbook XLS Black and Scholes Binomial Model Quick Pricing Formula Option Greeks Greeks Overview Option Delta Option Gamma Option Theta Option Vega Option Rho Option Charm Comments Peter May 30th, at am Hi Josh, apoligies for the delay - this one slipped through the cracks. Harsono September 29th, at am Dear Peter, from your answer :" What you have is a spread where one leg benefits OCtober from a rise in IV where the other leg December loses from the rise in IV. Harsono September 27th, at am Hi Peter, Thank you for your fast reply. Rgds, Harsono Peter September 23rd, at pm Hi Harsono, I see now. Harsono Peter September 9th, at am Hi Harsono, A negative Vega means that the value of your long position will decrease if the volatility of your position increases. Peter August 2nd, at am Hi Vega, I think the shape of the vega is consistent with the shape of volatility curve. Vega August 1st, at pm Hi, I have the same question as someone ask as above. Peter January 26th, at pm The symmetrical comment below was in reference to the fact that Vega is the same value for calls and puts. Peter July 9th, at am You mean symmetric for calls and puts? Then yes, as Vega is the same for calls and puts. John July 8th, at am Hi, Thanks for this. Are the curves symmetric? Cheers Peter May 2nd, at pm Vega estimates how much an option will gain or lose in value as vega volatility of the underlying asset changes. Pierre March 11th, at pm So actually the value of the stock is fixed. Thanks Peter, I think I get it. Pierre March 9th, at am Hi, can anyone explain me why the vega of the underlying is 0? Thanks in advance Peter March 5th, at pm Do you mean forecasting volatility? Throb March 5th, at pm Can vega be used to "theorized" expected forward IV spots? Peter January 17th, at am Hi Pankaj, Vega is always positive for calls and puts for both European and American options. Peter December 30th, at pm Hi Damola, check out the option call overview page first and let me know if you have any follow up questions.
By itself, not the smartest attire, but probably doubly dumb when the prosecution had a video of the guy with the gun on the clerk wearing a ski mask and — you guessed it — the same black leather jacket.
We have a 4 and 2yr old and I wanted to help with finances too, so I taught myself how to sew and now keep crazy hours sewing up boutique clothes and all that comes with owning your own business.
By itself, not the smartest attire, but probably doubly dumb when the prosecution had a video of the guy with the gun on the clerk wearing a ski mask and — you guessed it — the same black leather jacket.
We have a 4 and 2yr old and I wanted to help with finances too, so I taught myself how to sew and now keep crazy hours sewing up boutique clothes and all that comes with owning your own business.