How Does Vega Impact an Option’s Price?
Vega measures the sensitivity of an option's price to a 1% change in the underlying asset's implied volatility (IV). A high Vega means the option's price is highly responsive to changes in market expectation of future price swings.
Long option positions have positive Vega, benefiting from rising IV, while short option positions have negative Vega, benefiting from falling IV. Vega is critical because IV is often the most volatile input in the option pricing model.
Glossar
Vix Futures
Instrument ⎊ Vix Futures are financial derivative instruments that allow traders to speculate on or hedge against the future level of the CBOE Volatility Index (VIX), which is a key measure of implied volatility for the S&P 500 index options.
Option Pricing
Derivatives ⎊ Option pricing is the mathematical process of determining the fair theoretical value of a derivative contract, such as a call or put, based on inputs like the underlying asset price, time to expiration, volatility, and prevailing interest rates.
Network Hash Rate
Security ⎊ Network hash rate represents the collective computational power dedicated to a proof-of-work blockchain, directly influencing the cost and feasibility of malicious attacks.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.
Long Option Positions
Option Profile ⎊ Long Option Positions involve the outright purchase of call or put options, granting the holder the right, but not the obligation, to buy or sell the underlying crypto asset at a specified strike price before expiration.
Short Option Positions
Exposure ⎊ Short option positions, within cryptocurrency derivatives, represent an obligation to fulfill the underlying asset’s contract should the option be exercised by the buyer.