In today’s episode of Angel One Futures and Options, we explain Vega and its impact on option pricing with changes in market volatility.
[00:00:00] In this video, we will learn about Vega in the video. Vega is a Greek which measures the price of the option when volatility changes.
[00:00:13] Vega tells us that if the change in the volatility of 1% is applied, then how much will the price of the option change?
[00:00:20] For example, if your option's Vega is 0.25 and the volatility increases by 1%, then the price of the option will increase by 0.25.
[00:00:31] Let's take an example. Suppose you have a call option whose Vega is 0.20.
[00:00:39] If the volatility of the option is 20% and it becomes 21%, then your option price will increase by 0.20.
[00:00:48] Vega is therefore important because it helps us predict how the option price will behave when the volatility of the market changes.
[00:00:57] High volatility generally increases the prices of options and decreases the low volatility.
[00:01:04] When you are trading options, then you can consider Vega, especially when you think that the market is going to be volatile.
[00:01:12] So this is Vega's meaning in Greek options. We hope you found this update helpful.
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