QUIZ 10.6: Vega

Complete this definition of vega:
Vega is a measure of the option price’s sensitivity to changes in implied volatility. An option’s vega indicates how much the option’s value will change…

Which of the following statements is true?

Imagine you buy a call option with a vega of 0.9. If implied volatility increases by 1% and everything else remains constant, what change in the value of your position would be expected?

Imagine you buy a put option with a vega of 10. If implied volatility decreases by 1% and everything else remains constant, what change in the value of your position would be expected?

Imagine you sell a put option with a vega of 5. If implied volatility increases by 1% and everything else remains constant, what change in the value of your position would be expected?

Imagine you sell a call option with a vega of 25. If implied volatility decreases by 1% and everything else remains constant, what change in the value of your position would be expected?

Where an option’s strike price is in relation to the current underlying price will affect the option’s vega. Assuming IV and DTE are both relatively low, what type of option typically has the most vega?

The market’s view on future volatility, as expressed via the option prices and therefore the implied volatility, will have an effect on option vegas.

Using an example of a short dated deep OTM put option, which of the following sentences is correct?

The time left until the option expires (DTE) will have an effect on option vegas. Which of the following sentences is correct?

Given what you learned about the vega for multi-leg option positions in lecture 10.5, what is the total vega of a position consisting of the following two options:

+1 call with a vega of 1.62

+1 put with a vega of 4.62

Sticking with multi-leg positions, what is the total vega of a position consisting of the following options:

-1 call with a vega of 0.75

+1 put with a vega of 1

If we define two options as follows:

Option A with a vega of 5

Option B with a vega of 8

What is the vega of the following position:

+10 Option A

-8 Option B