Why Is the Delta of a Deep OTM Option Often More Sensitive to Changes in Vega than an ATM Option? ▴ Learn

Why Is the Delta of a Deep OTM Option Often More Sensitive to Changes in Vega than an ATM Option?

This statement is technically incorrect. The Delta of an ATM option is more sensitive to changes in Implied Volatility (IV) than a deep OTM option, a sensitivity measured by Vanna.

However, the price of an ATM option is more sensitive to IV changes (higher Vega). A deep OTM option's Delta is very low, meaning its sensitivity to price is low.

The deep OTM option's price sensitivity to IV (Vega) is lower than an ATM option, but its proportional change in price for a $1 IV change can sometimes be large due to its low initial price. But in absolute terms, the ATM option has higher Vega.

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