What Is “Vega Risk” and How Is It Managed by Market Makers?

Vega risk is the sensitivity of an options portfolio's value to changes in the implied volatility of the underlying asset. Market makers manage this risk by trading other options or derivatives that have an opposing Vega exposure.

For example, if they sell an option (positive Vega risk), they might buy another option or a volatility product to create a net-zero or desired Vega exposure.