Why Is Vega a Critical Greek for Long-Term Options Strategies?
Vega measures the sensitivity of an option's price to a 1% change in the underlying asset's implied volatility. For long-term options, the time to expiration is significant, meaning the uncertainty (implied volatility) over that period is a major component of the premium.
Vega is critical because it quantifies the risk associated with changes in market expectations of future volatility.
Glossar
Time to Expiration
Decay ⎊ Time to Expiration, within cryptocurrency options and financial derivatives, represents the remaining lifespan of a contract before its termination and potential exercise or assignment.
Long Vega
Exposure ⎊ This position reflects a net positive sensitivity to changes in implied volatility, meaning the portfolio's value increases when the market expects greater future price dispersion in the underlying cryptocurrency.
Greek
Sensitivity ⎊ : These are the first-order partial derivatives of an option's price with respect to underlying parameters, providing a measure of risk exposure.
Long-Term
Horizon ⎊ Long-term perspectives within cryptocurrency, options trading, and financial derivatives necessitate a valuation framework extending beyond immediate price discovery, incorporating stochastic volatility models and anticipating shifts in regulatory landscapes.