Options 101 Course

Take the Spot Test

The Greeks Part II

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Vega - Κ (also known as Kappa or Lambda)

  • When you trade stocks, you must be aware of volatility.  Volatility is also recognised as risk.
  • Higher volatility is predicated by larger price fluctuations, which translates into greater risk.
  • The greater the volatility and risk, the higher the options premiums will be.
  • Volatility is expressed as a percentage, reflecting the average or expected price change (regardless of the direction).
  • If a stock is currently priced at $100.00 and has a (historical) volatility of 20%, then that stock will be expected to trade within the range of $80.00 - $120.00.
  • Vega measures an option's sensitivity to historical volatility (measured by standard deviation) of the underlying asset price.
  • Vega is always positive and is identical for both calls and puts.

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