Kappa

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DEFINITION of 'Kappa'

One of the "Greeks," kappa is the ratio of the dollar price change of an option to a 1% change in the expected price volatility (also called implied volatility) of the underlying asset. Kappa tells investors how much an option's price will change for a given change in implied volatility, even if the actual price of the underlying stays the same. Kappa is higher the further away an option's expiration date is and falls as the expiration date approaches. Just as individual options each have a kappa, an options portfolio has a net kappa that is determined by adding up the kappas of each individual position.

INVESTOPEDIA EXPLAINS 'Kappa'

A positive kappa is associated with a long option and means that the option becomes more valuable as volatility increases, and a negative kappa is associated with a short option and means the option becomes more valuable as volatility decreases. Kappa, also called vega, is one of the most important options Greeks. Other important options Greeks include delta, which measures the impact of a change in the underlying asset's price; gamma, which measures the rate of change of delta; and theta, which measures the impact of a change in time remaining to expiration.

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