Vega: The Fear Gauge
Vega measures the sensitivity of an option price to changes in Implied Volatility (IV).
What is IV?
Implied Volatility represents the market's expectation of future movement.
High IV: Market expects chaos (E.g., Election Results, Budget Day).
Low IV: Market expects calm.
Vega's Impact
IV Crush (Seller's Friend)
When an event passes (like Earnings announcement), IV drops sharply.
Even if the stock price doesn't fallback, the option premium crashes.
IV Spike (Buyer's Friend)
If fear enters the market (e.g., War news), IV spikes.
Option premiums inflate like a balloon. You can profit even if direction is flat.
When to Buy/Sell?
- Buy Options: When IV is Low (options are cheap).
- Sell Options: When IV is High (options are expensive).
Example: Buying options just before a Budget announcement is dangerous. You pay a high premium due to high IV. Once the speech ends, IV crushes, and you lose money even if the market moves in your favor.
*Disclaimer: NSE/BSE frequently revise Lot Sizes and Expiry Days (e.g., SEBI Circulars 2024/2025). Always check the latest circular on nseindia.com before trading.
Standard Disclosure: Investment in securities market are subject to market risks. Read all the related documents carefully before investing. The content provided here is for educational purposes only and does not constitute financial or investment advice. AlgoStraddle Academy is not a SEBI registered investment advisor. Trading options involves high risk and capital can be lost.