I am trying to learn the "Greeks" and was reading a thread started by WayneL, and am having trouble understanding Vega.
In the below example it says that Vega is greatest ATM, which is true in monatary terms, but I would have thought it would be taken in percentage terms, which gives the $30 call the higher Vega. So if I had bought the $25 call I will have lost approx 20% of my initial outlay, compared to approx 45% if I had purchased the $30 call.
Example: MEOW is trading at $25 with option IV's @50%, and for some inexplicable reason, you buy the $20 call for $5.50, the $25 call for $2.15, and the $30 call for $0.65
For some equally inexplicable reason IV's fall to 40% during the day, and the price hasn't changed. This is what happens:
$20 call goes from $5.50 to $5.35, you lose 15c
$25 call goes from $2.15 to $1.75, you lose 40c
$30 call goes from $0.60 to $0.35, you lose 25c
So we can see here that vega is greatest ATM.