What Is the Relationship between Vega and the Volatility Smile/skew?
Vega is the sensitivity of the option price to the implied volatility level, while the volatility smile/skew describes how implied volatility varies across different strike prices. The smile/skew is a plot of the implied volatility used to calculate the option's Vega.
A trader must use the Vega corresponding to the specific strike price on the smile/skew to accurately determine the option's price sensitivity to volatility changes.
Glossar
The Volatility Smile
Phenomenon ⎊ The volatility smile is an empirical market phenomenon where implied volatility, derived from options prices, systematically differs across various strike prices for options with the same expiration date.
Implied Volatility
Expectation ⎊ This value represents the market's consensus forecast of future asset price fluctuation, derived by reversing option pricing models using current market premiums.