What Is ‘Vega’ in Options Trading and How Does It Relate to Implied Volatility?
Vega is one of the 'Greeks' that measures an option's sensitivity to a one-unit change in implied volatility (IV). A high vega means the option price will change significantly if IV changes.
Vega is highest for at-the-money options and options with a long time to expiration. Traders use vega to manage their exposure to IV changes, buying vega when they expect IV to rise and selling vega when they expect it to fall.
Glossar
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.
Vega
Sensitivity ⎊ Vega, within the context of cryptocurrency options and financial derivatives, quantifies the rate of change in an option’s price with respect to changes in the underlying asset’s implied volatility.
Options Trading
Stewardship ⎊ Involves utilizing these contracts to manage exposure to assets whose underlying technology or governance may evolve, ensuring capital is not locked into potentially obsolete systems.