982 Glossary 
Vega: the measure of how much an option's price changes for an incremental 
change-usually one percentage point-in volatility. 
Vertical Spread: any option spread strategy in which the options have different 
striking prices but the same expiration dates. 
Volatility: a measure of the amount by which an underlying security is expected to 
fluctuate in a given period of time. Generally measured by the annual standard 
deviation of the daily price changes in the security, volatility is not equal to the beta 
of the stock. Also called historical volatility, statistical volatility, or actual volatility. 
See also Implied Volatility. 
Volatility Skew: the term used to describe a phenomenon in which individual 
options on a single underlying instrument have different implied volatilities. I 11 
general, not only are the individual options' implied volatilities different, but they 
form a pattern. If the lower striking prices have the lowest implied volatilities, and 
then implied volatility progresses higher as one moves up through the striking 
prices, that is called a forward or positive skew. A reverse or negative skew works 
in the opposite way: The higher strikes have the lowest implied volatilities. 
Warrant: a long-term, nonstandardized security that is much like an option. 
Warrants on stocks allow one to buy (usually one share of) the common at a ("(•r­
tain price until a certain date. Index warrants are generally warrants on the pri<·<· 
of foreign indices. Warrants have also been listed on other things such as cross-('m 
rency spreads and the future price of a barrel of oil. 
Write: to sell an option. The investor who sells is called the writer.