Options & Derivatives

Vega

The sensitivity of an option's value to a one-point change in implied volatility.

Positive for both calls and puts - more volatility means more chance of a large favourable move, with the unfavourable side capped.

Largest at the money and for longer-dated options. That gives the practical rule: to trade a view on volatility itself, use long-dated options where vega dominates. To trade a view on a specific event, use short-dated options where gamma dominates.

Not a Greek letter, which occasionally comes up as trivia - it is the only member of the set that is not.

Full guide

Vega and Theta

Sensitivity to volatility and to the passage of time - the two Greeks that decide whether owning options pays.

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