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The Vega Riddle

Dear Options addicts, experts, traders and others being interested in option theory,

Last week I was reading a book (about options of course) and a passage on vega struck me. The following text was written:

If a call with a theoretical value of 1.82 has a vega of 0.06 and the Implied Volatility rises one percentage point from, say, 17 percent to 18 percent, the new theoretical value of the call will be 1.88 – it would rise by 0.06, the amount of the vega. If, conversely, the IV declines 1 percentage point, from 17 to 16 percent, the call value will drop to 1.76 – that is, it would decline by the vega.

My question to you is:

When interest would be set at 0% and the text is referring to a non-dividend paying asset, would this call option be:

  1. In the money?

  2. At the money?

  3. Out of the money?

Besides giving the right answer, I would also like to see the right argumentation why the other two answers will not be possible.

I have reserved two free copies of my book, How to Calculate Options Prices and Their Greeks, for the first two persons solving this riddle.

Good luck!

Best regards,


#Hedging #Options #Delta #Call #Put #Gamma #Vega #Theta #OptionsTrading #DeltaHedging #Kurtosis #VegaConvexity

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