The Kappa Indicator is designed to measure price sensitivity. It helps traders make informed decisions when it comes to trading. The idea behind the indicator is that there are two components to an option contract's price: volatility and time value (the remaining life on an option). In a nutshell, if you want to know how quickly a stock can move based on some outside event, you need to know how volatile the market will be during this period of time. However, volatility itself isn't going to tell you the answer – it only takes into consideration recent price movements.A key measure of an option's price sensitivity to changes in the underlying asset's volatility is called the "kappa." In this article, I'll explain what a kappa is and why you should use it when analyzing options.Volatility (the change in price due to forward movement in the market) is a composite measure of objective and subjective factors within an underlying asset. It can be thought of as the "ripple effect" in markets - the small changes that occur day-in, day-out ripple along through a set of instruments, very much like a ripple passing through water. The effect of this ripple is to make individual instruments more sensitive to sudden shifts in price movement than they otherwise would be.
