How Is Vega Used to Manage Volatility Exposure in an Options Portfolio?

Vega measures the change in an option's price for a one-percent change in the underlying asset's implied volatility. Since implied volatility is a key driver of option prices, Vega is essential for managing volatility exposure.

A portfolio with positive Vega gains value when implied volatility increases and loses value when it decreases. To manage this risk, a trader can create a "Vega-neutral" portfolio by taking offsetting positions to hedge against unexpected changes in market volatility.