By roma, 17 August, 2020

If you do not have time to run the Black-Scholes model on your computer, but you need to quickly estimate the value of ATM call or put options, you can use the following formula:

By roma, 17 August, 2020

Vomma (also known as weezu or Volga) - indicates the change in an option's vega when the implied volatility changes by 1%. Vomma is a 2nd order derivative. This means that Vomma indicates how another option's greek changes, not the value of the option itself.

By roma, 17 August, 2020

Often, non-professional options traders have a lot of confusion regarding the relationship of vega and implied volatility. This becomes obvious when traders use phrases: “long vega”, “long implied volatility” or simply “long vol”. So, what is the connection between an option position vega and implied volatility?

By roma, 17 August, 2020

The model has some important simplifying assumptions about the world around us. However, in periods of imbalance and panic in the financial market, these assumptions are completely meaningless, which distorts the fair value of options. Read the “Intrinsic and time value of an option”.

By roma, 17 August, 2020

If the current form of the time structure of volatility does not reflect a trader's point of view, then the trader can use this opportunity to trade options. The term structure is traded via two similar strategies described in the section on volatility skew trading:

By roma, 17 August, 2020

In the option market, historical volatility is calculated as the standard deviation of daily returns on the underlying asset over a specified period of time. In practice, traders and analysts use an annual expression of volatility, just as interest rates are always measured in annual terms.

By roma, 16 August, 2020

The option's Charm indicates how the option's delta will change as one trading day passes. Mathematically, the charm is a derivative of the delta with respect to time.

By roma, 16 August, 2020

The time structure graph depicts implied volatility of options with the same strikes but different expiry dates. As a rule, traders look at at-the-money options to plot the term structure.  At the same time, drawing the term structure from OTM options can also provide very useful information.