Lesson Option Vega

Ladies and Gentleman,

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Call me a chef the way I cooked up this 5 course meal of Alpha. Making me hungry, making you horny - all in a day’s work.

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Before you get your taters in a twist, remind yourself - Rome wasn’t built in a day. Consistency is the key to the city and your inbox is sparkling with the tools you need to become the mayor. Every Wednesday 🗓

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If you are one of the many new subscribers welcome to the continuation of our option series. If you would like to get the scoop on option topics such as - A simple ass Intro to Options, the VIX, Delta, Theta, and other content click here. (this might be a good place to start, or a good refresher)

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With that said, new subscribers and old, sit back/lean in, dry scoop some pre, throw on some tunes, and let’s feast. 🤌

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So, what the hell is Vega? (simply) 👇

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Vega 🎯

“Vega is the measurement of an option's price sensitivity to changes in the volatility of the the underlying asset” - Investopedia

Lets break that down…

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Vega builds on the VIX, which we touched on last week (if you missed that, it’s here). As we know, volatility impacts the “value” of an option. Vega measures how much your option’s value changes based on a percent change in implied volatility.🤔

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⭐ Example - Assume you own a SPY (S&P 500 ETF) call option worth $50 that has a Vega of 0.1 and the VIX (implied volatility index) is currently at 20%. If the VIX goes up to 21%, then, your option will be worth $50.10 (a 10 cent increase).

Vega is positive for options you buy (puts and calls) and is negative for options you sell (puts and calls). Simply put - If you buy an option you gain value as volatility increases and if you sell an option you lose value as volatility increases.

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⭐ Example - If you bet that a hockey team won't score in the last minute (like selling an option), you prefer a predictable, stable game (low volatility) because it reduces the chances of a last-minute goal. On the other hand, if you bet that the team will score (like buying an option), you want unpredictability and chaos (high volatility), as it increases the chances of a sudden, last minute score.

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If that makes you want to pick up the bottle, I get it. That one is more complicated than my Ex, so good shit.

Summary ✅

• Vega measures how an option’s value changes given a percent change in volatility📈
• Vega is positive for options you buy and negative for ones you sell💰