Can Vega Be a More Significant Risk Factor than Delta for a Portfolio of Far OTM Options? ▴ Learn

Can Vega Be a More Significant Risk Factor than Delta for a Portfolio of Far OTM Options?

Yes, Vega can be a more significant risk factor than Delta for a portfolio of far OTM options. Far OTM options have a Delta close to zero, meaning their price is barely sensitive to the underlying price.

However, their value is highly sensitive to changes in implied volatility (Vega). A sudden spike in IV can dramatically increase the value of a far OTM option, making Vega the dominant risk factor.

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