Photo by Alan Levine on Flickr

Photo by Alan Levine on Flickr.

«It’s all about demand.»


Volatility plays a significant role in options pricing. It is the only one of all six inputs to the Black Scholes Model influenced by supply and demand. Here’s how I think of it:

▶Demand rises > option premiums increase > implied volatility rises

▶Demand falls > options premiums decrease > implied volatility falls

If you want to know how much your option’s value will rise or fall based on a 1 point move in implied volatility, look at Vega. That’s what it measures.

▶When you buy an option, you have a positive Vega. In other words, you are LONG volatility and benefit as implied volatility rises.

▶When you sell an option, you have a negative Vega and are SHORT volatility. That means you benefit as implied volatility falls.

Rather than closely tracking the exact Vega number, I think it’s more important to understand the conceptual difference between long and short Vega positions.

▶When options are expensive (e.g., implied volatility is high), it’s more attractive to deploy short Vega positions like naked puts, covered calls, and credit spreads.

▶When options are cheap (e.g., implied volatility is low), it’s more attractive to enter long Vega positions like long calls and long puts.

🛑 Upcoming Options 101 Webinar: Options Greeks for Beginners with Coach Tyler Craig | February 28th, 2022 at 8:30 PM EST on YouTube

Want to really understand what makes an options contract tick? Learn the Greeks. They are the metrics that allow you to measure everything. Join Tackle Trading and get ready for an insightful discussion that will help you take your options trading to the next level.

On this webinar you are going to learn:

✅ What are the Options Greeks?
✅ The two dimensions of Delta
✅ Time Decay and Theta
✅ The role of Gamma
✅ Volatility and Vega

You don’t want to miss it!

Video of the Day: Options Greeks Guide Part 5: What is Vega (BONUS: FREE Options Greeks Guide)

How does Vega work? What is the correlation between Vega and volatility? How does it affect Option Premium?

That is what you will learn in this video. Here are the topics covered:

✅ What is VEGA?
✅ How does Vega work
✅ How Vega affects the Options Premium
✅ How to identify Vega
✅ The correlation between Vega and Volatility

Access the entire Options Greeks Guide video series

Continue learning about this powerful options trading concept: the Options Greeks. The entire Options Greeks video series can be accessed by clicking on the thumbnails below.

Chart of the Day:  Nasdaq Reversal for the Ages   

Thursday’s reversal was epic for so many reasons. The Nasdaq 100 ETF opened down more than 3% only to close more than 3% higher. The last and only time this has ever happened was in April 2000.

Today’s Blogs

Options Theory: A Classic Fade the Fear Trade

Today’s VIX spike and oversold market made for a perfect Fade the Fear trade.

Today’s line up

Traders Lounge 11 AM EST

Join the coaches in this live lounge, ask questions, discuss ideas or just sit back and listen to veteran traders discuss market conditions.

Cash Flow Club Replay

If you missed last night’s episode when Gino Poore talked about Delta uses and Theta targeting or would like to watch it again, check it out here.

Halftime Report 12:30 PM EST

The Halftime Report starts at 12:30 EST and covers what news is driving the market, chart analysis from the movers and shakers of the day, and fun in a way that only Matt and Tim can deliver.

Tackle Trading: Financial Freedom is a Journey. Sign up now for a 15-day free trial.

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