Tackle Today: Vega & Volatility
February 25, 2022
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.
Options Greeks Guide Part 1: What Are Options Greeks
What are the Options Greeks and how can you utilize them in your trading routine in order to perform better in the market? This is what you will be learning in this video series.
Options Greeks Guide Part 2: What Is The Black-Scholes Model
What is the Black-Scholes Model and how to use it in your trading? This is what this video will cover.
Options Greeks Guide Part 3: What Is Delta
Delta is the most famous options Greek. Come learn what Delta is and how it can help you become a better trader.
Options Greeks Guide Part 4: What Is Theta
To professional traders, Theta means CASH FLOW and PASSIVE INCOME. Come learn more about this powerful option Greek and how it can benefit your trading skills.
Options Greeks Guide Part 5: What Is Vega
How does Vega work? What is the correlation between Vega and volatility? How does it affect options premium? That is what you will learn in this video.
Options Greeks Guide Part 6: What Is Gamma
What is the correlation between Gamma and Delta and how does that impact your trading business? Learn more about this underrated option Greek in this video.
Options Greeks Guide Part 7: What Is Rho
What is Rho? How does Rho affect options premium? This is what you will learn in the latest episode of this Options Greeks video series.
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Today’s VIX spike and oversold market made for a perfect Fade the Fear trade.
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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.
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