Vega
The sensitivity of an option's price to a 1-percentage-point change in implied volatility.
Formula
ν = ∂V / ∂σ (change in option value per 1% change in implied volatility)
Vega measures how much an option's premium changes for each 1% move in implied volatility. A vega of 0.15 means the option gains $15 per contract if IV rises by one percentage point.
Long options are always long vega: rising implied volatility increases the option's value. Short options are short vega: volatility spikes hurt sellers because the options they are short become more expensive to buy back.
Vega is highest for longer-dated, ATM options — a LEAPS option can have many times the vega of a weekly contract at the same strike.
Related Terms
Gamma
The rate of change of delta per $1 move in the underlying — it measures how fast delta itself accelerates.
AdvancedImplied Volatility
The market's forward-looking expectation of volatility, derived by solving the options pricing model for the volatility that matches the observed premium.
AdvancedLEAPS
Long-term Equity AnticiPation Securities — listed options with expirations longer than one year. Used for longer-horizon directional bets or low-cost covered-call strategies.
IntermediateRho
The sensitivity of an option's price to a 1-percentage-point change in the risk-free interest rate.
AdvancedStraddle
An options strategy involving the simultaneous purchase (or sale) of a call and a put at the same strike and expiration, betting on large moves (or low volatility).
AdvancedThe Greeks
The collective name for the sensitivity measures — delta, gamma, theta, vega, rho — that describe how an option's price responds to changes in market variables.
IntermediateTheta
The daily rate of time value erosion in an option's price, assuming all else stays constant. Usually negative for long options.
IntermediateVolatility Skew
The pattern in which implied volatility varies across strikes at the same expiration, usually with OTM puts pricing higher IV than OTM calls.
Advanced