🌡️ Stock Option Vega

Definition

Vega (ν) measures how much an option’s price is expected to change for every 1 percentage point change in implied volatility (IV).
It reflects the sensitivity of the option’s premium to shifts in market expectations of future volatility.

Why It Matters

Volatility Exposure: Vega helps traders understand how changes in IV affect option pricing.
Event Sensitivity: Vega spikes around earnings, news, or macro events that may drive volatility.
Strategy Selection: High-vega options favor buyers in volatile markets; low-vega favors sellers in calm conditions.

Example

Suppose you own a call option with a vega of 0.12.
If implied volatility rises by 1%, the option’s price is expected to increase by $0.12, all else being equal.

Key Insights

Vega Level	Option Type	Implication
High	Long-dated, ATM options	Most sensitive to IV changes
Low	Short-term or deep ITM/OTM options	Less responsive to IV shifts
Positive	Long calls and puts	Benefit from rising volatility
Negative	Short calls and puts	Benefit from falling volatility