Glossary
Vega
The option Greek that estimates how much an option’s price changes for each one-point change in implied volatility.
On this page
Vega measures how sensitive an option's price is to changes in implied volatility. A vega of 0.15 means the option should gain about 15 cents per share if implied volatility rises one percentage point, and lose about 15 cents if it falls one point, with everything else unchanged. It matters because an option's price can move a lot even when the stock barely moves, simply because the market's expectation of future swings changed.
How it works
Both calls and puts have positive vega for the buyer: higher expected volatility raises the chance of a large move, which makes any option more valuable. Option sellers are short vega and benefit when volatility falls. Vega is largest for at-the-money options and for longer-dated ones, because there is more time for volatility to matter; it shrinks as expiration approaches.
The volatility crush
That last pattern is common enough to have a name: volatility crush. Implied volatility tends to build into scheduled events, such as earnings or a drug-approval decision, and collapse once the news is out. Options bought just before the event carry a lot of vega exposure, and a move smaller than the market expected can leave them with losses. Watching vega alongside theta and delta gives a fuller picture of what will drive an option's price.