Options Glossary

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Variable Delta

A delta that can change due to the change of an underlying asset or a change in time expiration of an option.

Vega

The amount by which the price of an option changes when the volatility changes. Also referred to as volatility.

Volatility

A measure of the amount by which an underlying is expected to fluctuate in a given period of time. Volatility is a primary determinant in the valuation of options premiums and time value. There are two basic kinds of volatility, implied and historical (statistical). Implied volatility is calculated by using an option pricing model (Black-Scholes for stocks and indices and Black for futures). Historical volatility is calculated by using the standard deviation of underlying asset price changes from clos e to close trading going back 21 to 23 days.

Volatility Skew

The theory that options that are deeply out-of-the-money tend to have higher implied volatility levels that at-the-money options. Volatility skew measures and accounts for the limitation found in most options pricing models and uses it to give the tra der an edge in estimating an option's worth.

Volume (Vol)

The amount of shares bought and sold on a stock exchange.