How vega impacts on premium prices
Any upper limit lower limit of vega for sellers can decide when to sell
Vega is positive for both call and put options. This means that an increase in implied volatility generally leads to an increase in option premiums, and a decrease in implied volatility leads to a decrease in option premiums.
When implied volatility rises, options become more valuable because there is a higher likelihood of significant price swings in the underlying asset, which can benefit option holders. As a result, the demand for options increases, pushing up their prices.
High vega indicates that the option’s premium is highly sensitive to changes in implied volatility. Options with high vega are often referred to as “vega-sensitive” or “vega-rich” options.
Low vega suggests that the option’s premium is less affected by changes in implied volatility. Options with low vega are often referred to as “vega-neutral” options.
Longer-term options typically have higher vegas compared to shorter-term options. This is because longer-term options have more time for potential price swings to occur, making them more sensitive to changes in implied volatility.
At-the-money (ATM) options generally have the highest vegas, while options that are deep in or out of the money have lower vegas. This is because ATM options are more influenced by changes in the underlying asset’s volatility.
There is no fixed upper or lower limit for vega that sellers should adhere to when deciding when to sell options, as it depends on various factors, including an individual trader’s risk tolerance, trading strategy, market conditions, and the specific options being traded.
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Thanks for deep explanation
By the way upper paragraph almost cleared my doubts regarding Vega
Just One more curiosity I observed some places Vega increasing like J curve and falling like straight line( I mean non linearity’s) is it normal or differs from scenario to scenarios
Vega increasing like a J curve and falling like a straight line is not a standard pattern and can vary depending on the specific scenario and factors at play.
Vega typically exhibits a more linear relationship with changes in implied volatility.
Okey Thank u