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Options Crash Course

Options Crash Course: Ep #6 - Trading Changes in Implied Volatility

Options Crash Course

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

As tastytrade’s Crash Course continues, we turn our attention to implied volatility. If we revisit the Black-Scholes Model, we learn that the first derivative of the model with respect to volatility, or vega, can show us how an option’s price will change when volatility does indeed change. From this, we see that long options will have positive vega and short options will have negative vega. Furthermore, the tendency for volatility to both contract and mean revert affords us some very distinct opportunities as premium sellers.

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