Kappa

AAA

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.

RELATED TERMS
  1. Ultima

    The rate at which the vomma of an option will react to volatility ...
  2. Vomma

    The rate at which the vega of an option will react to volatility ...
  3. Option

    A financial derivative that represents a contract sold by one ...
  4. Volatility

    1. A statistical measure of the dispersion of returns for a given ...
  5. Vega

    The measurement of an option's sensitivity to changes in the ...
  6. Greeks

    Dimensions of risk involved in taking a position in an option ...
Related Articles
  1. Options & Futures

    Getting To Know The "Greeks"

    Understanding price influences on options positions requires learning about delta, theta, vega and gamma.
  2. Options & Futures

    Bettering Your Portfolio With Alpha And Beta

    Increase your returns by creating the right balance of both these risk measures.
  3. Active Trading

    The Linear Regression Of Time and Price

    This investment strategy can help investors be successful by identifying price trends while eliminating human bias.
  4. Fundamental Analysis

    What is the affect of the invisible hand on consumers?

    Discover how consumers help initiate and benefit from the invisible hand of the market, which naturally coordinates trade in an exchange economy.
  5. Economics

    How does the invisible hand phenomenon affect investment markets?

    Read about how the invisible hand of the market coordinates investment markets and provides social benefit and why its effects are distorted along the way.
  6. Fundamental Analysis

    What are some examples of economies of scale?

    Take a look at different examples of economies of scale, including how marginal costs can be reduced through external and internal factors.
  7. Fundamental Analysis

    How can quantitative easing be effective in the economy?

    Take a deeper look at the impacts of the Federal Reserve's large scale asset purchase plan, better known as quantitative easing, or QE.
  8. Options & Futures

    What is the difference between a short position and a short sale?

    Learn how short selling and short positioning are different, specifically in regards to the nature of the commodity being bought and sold.
  9. Options & Futures

    Are there any risks involved in trading put options through a traditional broker?

    Explore put option trading and different put option strategies. Learn the difference between traditional, online and direct option brokers.
  10. Options & Futures

    Options -- Accessing Stakes In Apple At Less Cost

    Finding Apple stock costly to trade? Here are multiple ways to trade it through low-cost Apple options.

You May Also Like

Hot Definitions
  1. Treasury Bond - T-Bond

    A marketable, fixed-interest U.S. government debt security with a maturity of more than 10 years. Treasury bonds make interest ...
  2. Weight Of Ice, Snow Or Sleet Insurance

    Financial protection against damage caused to property by winter weather specifically, damage caused if a roof caves in because ...
  3. Weather Insurance

    A type of protection against a financial loss that may be incurred because of rain, snow, storms, wind, fog, undesirable ...
  4. Portfolio Turnover

    A measure of how frequently assets within a fund are bought and sold by the managers. Portfolio turnover is calculated by ...
  5. Commercial Paper

    An unsecured, short-term debt instrument issued by a corporation, typically for the financing of accounts receivable, inventories ...
  6. Federal Funds Rate

    The interest rate at which a depository institution lends funds maintained at the Federal Reserve to another depository institution ...
Trading Center