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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Greeks
Advanced
Vega
The sensitivity of an option price to changes in volatility.
Detail
Vega shows how much the option price will change if the implied volatility (IV) changes by 1%. For example, a vega of 0.10 means that if the IV increases by 1%, the option price will increase by $0.10.
Vega measures the effect of changes in volatility on the option price. Important for strategies that bet on the rise/fall of IV. A higher vega means that the option price will be more sensitive to changes in volatility. Long-term options (LEAPS) have higher vega, close to expiration the vega is low.
Optimal conditions
When expecting an increase in IV (buying options) or a decrease in IV (writing options). High IV = high vega, low IV = low vega.
Max profit
It does not determine directly, it depends on the chosen option strategy.
Max loss
It does not determine directly, it depends on the chosen option strategy.
Risks
If the IV falls, the option price may drop sharply (a loss for the buyer).
Greeks
The sensitivity of an option price to changes in volatility.
Variations
High Vega (IV growth strategy), Low Vega (IV decline strategy).
Usage example
I buy a call option on TSLA when I expect an increase in IV before earnings. Listing put options when high IV and expecting a decrease in volatility.
DTE
Vega is higher for long-term options, decreasing as expiration approaches.
IV (implied volatility)
Direct link. Vega directly depends on IV.
Premium
Higher vega means higher premium.
Margin
Listing options with high IV and vega requires higher margin due to risk.
Notes
Important for volatility trading. Vega is key for traders betting on the change in IV.
Tags
vega, volatility, IV, Greek letters, volatility sensitivity
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