What you make when implied vol ticks up a point

Question

You are long 50 call contracts (each covers 100 shares). Each option has a vega of \0.15, that is, its price rises by \0.15 for every one-point (one percentage-point) increase in implied volatility. Implied vol rises from 20\% to 23\%. How much did you make on the vol move alone?

Accepted Answer

Vega is measured per vol point, so multiply three things: vega, the number of vol points, and the number of option-shares. Vol points moved: 23\% - 20\% = 3. Option-shares: 50 	imes 100 = 5{,}000. 	ext{P\&L} = 	ext{vega} 	imes 	ext{vol points} 	imes 	ext{option-shares} = 0.15 	imes 3 	imes 5{,}000 = \2{,}250. A couple of points worth internalizing: - This is the vega contribution only. Your total P&L also has delta, gamma, and theta pieces; vega isolates the effect of the market re-pricing volatility, holding the stock fixed. - Vega is largest for at-the-money, longer-dated options, …

What you make when implied vol ticks up a point

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