Concept
Vega and Gamma
Vega measures sensitivity to implied volatility; Gamma measures how fast Delta changes as the underlying moves. Gamma is second-order — it describes the rate of change of another Greek rather than of price directly.
Gamma across spot price (19800 – 24200)
| Theoretical price | 512.69 |
| Deltachange in option value per 1 unit move in the underlying | 0.5515 |
| Gammachange in delta per 1 unit move in the underlying | 0.00035 |
| Thetachange in value per calendar day, all else equal | -9.555 |
| Vegachange in value per 1 percentage point of implied volatility | 24.953 |
| Rhochange in value per 1 percentage point of interest rate | 9.550 |
Computed with the same Black-Scholes implementation CernoQuant uses for real trades, at a 6.5% risk-free rate and calendar-day theta. Values are theoretical: traded option prices differ from model prices, and every input above is hypothetical.
How to read it
- Vega is quoted per one percentage point of implied volatility. A Vega of 12 means the model price moves about 12 if IV shifts by one point.
- Gamma is highest near the money and close to expiry, which is where Delta shifts fastest for a given move.
- High Gamma means a Delta estimate becomes stale quickly — the position behaves differently after a move than the pre-move Delta suggested.
What it does not tell you
- Vega assumes volatility can shift independently of price. In practice they often move together, so isolating the effect is artificial.
- Gamma being second-order makes it easy to underestimate. Positions that look small by Delta can change character rapidly near expiry.
- Both come from a model that assumes constant volatility, which is precisely the assumption Vega exists to relax.
Frequently asked questions
What is vega in options?
The change in theoretical option price for a one percentage point change in implied volatility, with everything else held constant.
What does high gamma mean?
That Delta changes rapidly as the underlying moves. It is highest near the money and near expiry, which is where a position’s directional exposure shifts fastest.
Why is gamma called a second-order Greek?
Because it measures the rate of change of Delta, which is itself a rate of change of price. It is a derivative of a derivative.
Which matters more, vega or gamma?
They matter in different circumstances — Vega when volatility moves, Gamma when the underlying moves sharply near expiry. Neither is generally more important, and which dominates depends on the position and conditions.
Related
- Options Greeks: An Overview — Concept
- Delta — Concept
- Volatility: What It Measures and What It Does Not — Concept
Educational use only
This page is educational material about how a technical tool is calculated and read. It is not investment advice, not a recommendation to buy or sell anything, and not a signal service. No indicator predicts future prices. CernoQuant is a trading journal and analytics platform, not a SEBI-registered investment adviser. Trading decisions and their outcomes are yours alone.
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