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Vega


Meaning of Vega

Vega measures the change in Options price per unit change in Volatility. A Vega value of 6.87 shows that for every unit increase in Volatility, option price will increase by 6.87. Thus, Vega shows effect of Volatility on option price.

Important Points for Vega

When you buy Call Option, Positive Vega multiplies by Positive Quantity, hence gives Positive Portfolio Vega which signifies that buying Call Option means LongVega Position.

When you sell Call Option, Positive Vega multiplies by Negative Quantity, hence gives Negative Portfolio Vega which signifies that selling Call Option means ShortVega Position.

When you buy Put Option, Positive Vega multiplies by Positive Quantity, hence gives Positive Portfolio Vega which signifies that buying Put Option means LongVega Position.

When you sell Put Option, Positive Vega multiplies by Negative Quantity, hence gives Negative Portfolio Vega which signifies that selling Put Option means ShortVega Position.



VEGA Graph



VEGA with respect to change in SPOT PRICE:



Observations: As spot price increases​

  • Call premium increases and Put premium decreases.
  • Calldelta increases and Putdelta decreases.
  • Gamma is at peak at ATM and decreases as UNDERLYING moves away.
  • Vega is at peak at ATM and decreases as UNDERLYING moves away.

VEGA with respect to change in STRIKE PRICE:



Observations: As Strike price Increases​​

  • Call premium Decreases and Put Premium Increases.
  • Call Delta Decreases and PutDelta Increases.
  • Gamma is at peak at ATM and decreases as UNDERLYING moves away.​
  • Vega is at peak at ATM and decreases as UNDERLYING moves away.

VEGA with respect to change in DAYS TO EXPIRY:​



Observations: As days to expiry decreases / time increases​​​​

VEGA with respect to change in VOLATILITY:​



Observations: As Volatility increases​​​

VEGA with respect to change in RATE OF INTEREST:​



Observations : As Rate of Interest increases​​​

Summary of VEGA Relationship with other variables:​







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