Investing to Wealth

There''s an old saying: “Volatility represents opportunity but vega measures money.” Okay maybe that’s not an old saying. But it speaks to the fact that while many people use the terms vega and volatility interchangeably there is a distinction. Implied volatility is one of the inputs that comprise an option’s price whereas vega measures the actual dollar impact of any change in volatility. Vega is defined as the expected rate of change in an option's value for a one-unit change in implied volatility. Unlike delta which describes how a position's value will change relative to price vega shows how ...