Vega Option Greek

 Vega is an option greek that measures the impact of the change in the volatility of the underlying on the price of an option. Vega calculates the change in the price of an option for every 1% change in the volatility of the underlying.

Suppose SBI is trading at Rs 300 in May and a June Call is selling for Rs 20. Let's assume that the vega of the option is 0.30 and volatility of SBI is 29%. Now if the volatility increases by 1% to 30%, the price of the Option will be Rs 20 + 0.30= Rs 2.30.

In case the volatility had gone down by 3% to 26% instead, then the option price will be:  Rs 20- (3 x 0.30) = Rs 19.10

Answered on 2018-05-30