Vega Explained Simply: How IV Changes Option Prices | Option Greeks Part 3

[00:02] VG. This is our Fourth Greek. But before talking about VGA, we have to before talking about VGA, we have to understand IB. And this is also a very important factor when we talk about strike price selection.

[00:35] Volatility. Ok? Now from implied volatility you should understand that the volatility of each strike price is different. And we always read that volatility in percentage. What does volatility mean? How much a particular strike

[00:51] price can go up or down today. Meaning how much its value can increase or decrease. Let's assume the implied volatility of a strike price is 10. Meaning it is 10%. So generally you should

[01:07] understand that if the value is ₹100. If the strike price value is ₹100 then 10% strike price value is ₹100 then 10% upside means it can go up to ₹110 and fall down to ₹90. But is it 100% correct? No, it is not 100% correct

[01:22] 100% correct? No, it is not 100% correct because there is implied volatility at every level. It is not that if it is told in the morning that its IV is 10%, then it can not that if it is told in the morning that its IV is 10%, then it can

[01:37] day and with every movement. And if you understand IV then we can discuss V on the basis of IB only. So first of all we have to see whether volatility is good or bad for an option buyer.

[01:56] not a good thing for both option buyers and sellers. We need more stability if you want to trade. Meaning, even if the market is going up, it should go up with stability. If the market is going down, it should go down with stability. When

[02:10] volatility is very high, the premium value rises significantly. Meaning, let us say that when the IV is very high then you will get expensive premiums and

[02:24] when the premiums are high then if you buy then you will get an expensive deal. If we look at this from the perspective of an option seller, when the IV increases too much, you understand that the premium has become very expensive. Selling from this place

[02:38] is still possible but buying is very dangerous. Ok? to that platform now. So before moving ahead in the video, I would like to recommend a platform for option buying

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[03:23] after using different platforms for many years I felt that this is an overall package which I can take forward in trading. So if you also want to use this platform then you will get the link in the description of my video. Open an account from there and

[03:35] try using this platform because it will be totally free for the first one month. So guys we have come to the right platform where I can see both IB and V at one place. IV stands for Implied Volatility. Different strike

[03:52] prices have different IVs. We have discussed this before. How many IVs is that? Now look here the IV of this strike price is here the IV of this strike price is 7.11, its is eight, its is 6.91, its is

[04:06] 7.11, its is eight, its is 6.91, its is six, where is the lowest IB? Implied volatility is lowest in the area around the ATM. And the more we move away from it, the more our income will increase. Look at this 15 16 17

[04:24] income will increase. Look at this 15 16 17 18 20 means the more we go into deeper ITM or the more we go into deeper OTM, the IB keeps increasing on both sides and we have discussed that having too much IB is

[04:39] not good for us because it shows increased volatility and when IB is high then the premiums become expensive.

[04:52] means that buying and selling is happening very fast there. Where there are very few traders, the order execution is jumping. Meaning, after ₹100, the buying is happening directly at ₹110. He is

[05:13] jumping. So where is the ivy too much ? Where traders are trading too much or traders are trading too little. So we don't have to go too far away from the ATM because it's going against us. Ok? So first of all

[05:29] you have to see that the IV is not increasing too much when you are buying options. If you are selling options then by looking at higher IV you can understand that you should sell at these strike prices and higher IV

[05:46] is showing a higher premium value which should not be there and higher IV value will be considered very good for your selling. Ok ? What should its measurements be? How many IVs should be bought? How many IVs should be soldered? I am

[06:00] telling you a little about that also. If you do option buying then you keep IV. Between 10 to 20, you should think about option buying. If you think from the perspective of option selling, then look at IV 35 plus or should you say

[06:18] between 25 to 35, even if it is beyond 35, it will still work. If it is above 25 then it is a good IV for selling. Now how do we read V using IV? how do we read V using IV? Whenever the IV, like this IV of 8%, is

[06:34] Whenever the IV, like this IV of 8%, is plus or minus 1%, then plus or minus 1%, then

[06:47] subtracted to your premium value. Ok? How? Let's assume this is a strike price of 26,000, this is a strike price of 26,000, what is the value of the call? ₹22. Now what is its biga value? What is the value of seven and IV? 7.69 If it

[07:06] increases its IV by 7.69, how much does it become? 8.69 so your premium value pay as it is does not need to depend on market movements. But it will be ₹7 plus. If this IV falls by 1%,

[07:19] i.e., it comes down to 6.69, then your premium value will decrease by ₹7. This means that you should understand that when volatility increases, your premiums become expensive. Vega value

[07:35] can tell you how expensive it becomes. Where is the OK and V value higher? Most of them are higher? Most of them are near ATMs. So V value is in your favor even when the market is going in your favor and V value is against you even when the

[07:50] market is going against you. So it is very important for you to read the V value because a very high V value will work against you when the market is going against you. If it is in your favor then you will be very happy that the

[08:06] premium is increasing very fast. But in the market we should always think about the probability of both sides. in the market we should always think about the probability of both sides. which Greeks should we watch? So first of all we have Delta, second Gamma,

[08:21] So first of all we have Delta, second Gamma, third Theta, fourth V and Biga, you third Theta, fourth V and Biga, you will combine them with IV which is our fifth Greek, you can ignore Rho because it works on the basis of your inflation rate

[08:35] and inflation changes do not happen every day in your country. Ok? So there should be high delta for option buying. Option buying requires low gamma.

[08:47] Option buying requires low theta. For option buying, IV should be low and I have described that it should be between 10 to 20 and

[08:59] that it should be between 10 to 20 and Vega should also be low. Yes, Biga happens against you. Vega should also be low. Yes, Biga happens against you. which is on the ITM side and also if you are buying options then

[09:14] and also if you are buying options then expiry ahead, that is, if you are in weekly expiry then go one expiry ahead.

[09:27] If you trade monthly expiry then that is very good. But monthly expiry also does not mean that I should trade the monthly expiry today, three days before the monthly expiry. Because that too will become a recent expiry for me.

[09:41] Ok? You have to keep all these factors in mind when your technical direction is correct, that is, when you are sitting in the right direction, how can you gain maximum profit from it.

[09:53] how can you gain maximum profit from it. which we will also learn to trade on the basis of OI. You will