What Is Vega?
Vega measures how much an option's price changes when implied volatility (IV) moves up or down by 1 percentage point. A call with vega 0.20 gains $20 per contract if IV rises from 25% to 26%, all else equal. Both calls and puts have positive vega — IV expansion helps option holders, hurts option sellers.
Vega is highest on long-dated, at-the-money options. Far OTM and short-dated options have minimal vega. IV typically rises before earnings, FDA events, and macro releases — long-vega trades placed days before such events can profit from IV expansion even if the underlying doesn't move much.
After major events, IV often collapses (the 'IV crush'), and long-vega positions lose value rapidly. Short-vega strategies (iron condors, credit spreads) are designed to harvest this crush. Knowing vega is essential for any options trader because directional moves can be entirely cancelled out by IV changes.
Related terms
- Delta — Sensitivity of an option's price to a $1 change in the underlying.
- Gamma — Rate of change of delta — measures how fast directional exposure shifts.
- Theta — Time decay — how much an option loses in value per day as expiration approaches.
- Implied Volatility (IV) — Market-expected future volatility, derived from options prices.