The impact of a change in volatility on a stock option's value is known as __________.
A) Gamma
B) Delta
C) Theta
D) Beta
E) Vega

Question

Quizplus · Accepted Answer

The impact of a change in volatility on a stock option's value is known as Vega. Vega measures the sensitivity of an option’s value to changes in the volatility of the underlying asset. When volatility increases, the value of the option increases, and when volatility decreases, the value of the option decreases. Therefore, option traders use Vega to assess the impact of changes in implied volatility on the value of an option.

The Impact of a Change in Volatility on a Stock