A little more from Stephen Szpak:
http://www.investopedia.com/terms/v/vega.asp
Also more from:
http://www.oasismanagement.com
Vega - Is the measure of change in an option given a change in the volatility. Theoretically, it measures the instantaneous change in premium to the instantaneous change in volatility. In practice, it tends to be viewed as the change in premium given a 1 percent in volatility.
Vega Risk - Refers to the monetary exposure for a change in volatility for an option. It might refer to a change from 6 to 7 or 6 to 5 percent depending on whether a party is short or long the option. Some participants breakdown the vega risks into finer gradients or decimals.
Don't ask me about the above. Not competant in such.
See Market Wizards pages for what happened to puts and
calls in the 1987 crash:
page 400 t0 401:
partial excerpt:
interviewer: You were basically buying more volatility.
trader: It was the best thing I could have done. The next
day they didn't know what they wanted more of:
Half the world wanted puts, and half the world wanted
calls.
interviewer: But everybody wanted volatility.
trader: That's when the register really started ringing. It was
the day that the sun was so close to the earth that
everybody needed zinc ointment, and I was the only
guy that had some left.
Also of note: "...the option premiums consisted almost entirely
of intrinsic value; the market wasn't giving them
any time value premium. Given the enormous
market volatility, I thought that was crazy.
See Market Wizards about the 1987 crash it self ,if you have
access to the book::::
pg 58 top paragraph
pgs 268 to 269
Just a few comment to keep things going here. Look forward
to comments from anyone on any of the above.
Stephen Szpak
