Dear Sir,
Please refer the attached image.
As the option approaches maturity ‘Vega’ should decrease. However, in the explanation, CFA Institute says that the Option approaches maturity and is ‘ATM’, Vega increases. Ideally, there should be a conflict between decreasing maturity and being “ATM” in terms of decreasing and increasing Vega respectively, and the result should be unclear.
Thank You.
Vega is high when options are at or near the
money. Volatility is usually only hedged with other options and volatility itself can be
quite volatile.
ATM options are most sensitive to changes in volatility and therefore have the highest Vega values. Vega then tapers off towards OTM and ITM option strikes.
Hi! Can you please share the full question? Thanks.