What is Vega option in financial market?

Vega Option

Vega is best on volatility in financial market. There are two types of volatility that related to a stock or index historical and implied volatility. 

Historical volatility of a stock may be calculated using historical trading prices. Example,the historical volatility for the previous 20 days trading may be determined by calculating the historical annualized standard deviation of day-to-day return over the past 20 days.

Implied volatility is the level of volatility that is being indicated by option prices as the expectation of the range of Delhi return expected over the life of the option.the implied volatility of the option is one of the pricing factor of an option that appears on a quote line. When the option price of an option is known the volatility may be determined using an option calculator.

There are some calculation indicates that the option are pricing in the 9.34 percent range in moment over the next 15 days therefore formula for determining near-term pricing move projection would be,

(Implied volatility/square root (252)"square root (days to expiration))

(.3829/15.89)*3.87=.0934

implied volatility may also be interpreted as the risk level of the underlying security. The higher the implied volatility the higher the risk involved in knowing the underlying instrument. When leading off to some short to announcement that will result in a possible large move up or down in a stock the implied volatility of the option tends to increase. In front of an announcement such as earning there is more risk of going share. After unknown announcement has a called and the knowledge is public the risk goes down and so should the implied volatility as indicated by option price.

A common perception regarding implied volatility is that it may be set by professionals or market makers. Implied volatility is set by the market action in the option market.if there is a large amount of buying of call and put the implied volatility of the option will increase and when there is a selling pressure on call and the put the implied volatility will decrease.

Option may be purchased to you speculateon a big short-term move there does seem to be a consistent increase in implied volatility of options before an announcement.also has put option may be used as insurance for A long stock holding in front of risk period of time there can be an increase in put buying which will push the level of implied volatility higher.

Vega like theta has the same impact on call and put option however the sign for Vega is positive.an increase in volatility will have a positive price impact on a call and a put and decrease in volatility will have a negative price impact on a call and a put option.

Shift in implied volatility can have a dramatic impact on the value of option.many traders had been for flexed by the move in option price relative to the move scene in underlying security.