What Is Options Vega?
Vega measures how much an option's price changes for every 1% change in implied volatility. High vega means your option is very sensitive to volatility changes.
Definition
Vega measures the change in an option's price for every 1 percentage point change in implied volatility (IV). A vega of 0.10 means the option gains or loses $0.10 per share ($10 per contract) for every 1% change in IV. Unlike delta, gamma, and theta, vega is a single number for both calls and puts.
Both calls and puts increase in value when implied volatility rises (positive vega for buyers). This is why buying options before a catalyst (earnings, FDA decisions, FOMC) is tempting — if volatility spikes, the option value rises even without a directional move.
The danger is 'volatility crush' — after a big event (like earnings), IV often drops sharply even if the stock moves significantly. Buyers who paid high IV premiums can lose money even when they predicted the direction correctly, because vega destroyed their gains.
Real-World Example
You buy a call with vega of 0.15 when IV is at 30%. If IV spikes to 40% (up 10%), your option gains $1.50 per share ($150 per contract) from vega alone — even if the stock doesn't move. If IV collapses from 30% to 20% after earnings, you lose $1.50 per share.
Why It Matters
Vega is why buying options right before earnings often loses money — you're buying at peak implied volatility, and IV collapse after the announcement destroys the option's time value regardless of direction.
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Frequently Asked Questions
What is volatility crush?
Volatility crush is the rapid decline in implied volatility (and therefore option premium) after a major event like earnings. Even if a stock moves 10% after earnings, the IV can drop from 80% to 30%, which destroys the time value premium you paid. This is why many experienced traders sell options before earnings rather than buy them.
Is high vega good or bad?
High vega is good for options buyers when you expect volatility to rise. It's bad for buyers when volatility falls (earnings crush). For sellers, high vega is desirable — you sell at high IV and profit when IV reverts to normal.
Which options have the highest vega?
Long-dated ATM options have the highest vega — they have the most time for volatility to matter. Short-dated deep ITM or deep OTM options have very low vega because their values are almost entirely intrinsic or near zero.
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