Equity Options Vega and Implied Volatility

Equity Options Vega and Implied Volatility

In this video, Imran explains the meaning of implied volatility and how we can use the BS model to extract it from market option prices. He further discusses how vega is the greek exposure that an options price has to this implied volatility level and finishes with describing structure of volatility and how it can be used to derive forward volatility.
Overview

When there is a significant event on the calendar, such as an election, the forward volatility that can be extracted from the term structure for a time span that captures the event is often elevated. This creates "kinks" in the volatility curve, which traders often buy or sell based on their expectations for the amount of volatility that the event would generate.

Key learning objectives:

  • What is Implied Volatility and how is it extracted from market option prices through Black-Scholes model?

  • What is Vega & term structure of volatility?

  • How do we calculate weighted vega?

  • What is Forward Volatility?

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Summary
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Expert
Imran Lakha

Imran Lakha

Imran has been an equity derivatives trader for over 20 years and has run European equity index options trading desks for Merrill Lynch and Citibank. He also spent time as a macro portfolio manager at Bluecrest Capital. Currently, Imran runs his own training company specialising in teaching people how to trade options. This is: Options Insight - Traders That Teach, www.options-insight.com

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