Vega

Vega is the expected change in an option's price for each one-percentage-point change in implied volatility. A vega of 0.12 means the option should gain about $0.12 per share ($12 per contract) if IV rises from 50% to 51%, and lose the same if IV falls by a point.

How it works

Vega is positive for option buyers (calls and puts alike) and negative for sellers. It is:

• Highest for at-the-money options, which carry the most time value.
• Larger for longer-dated options, because volatility has more time to matter. A one-year option is much more sensitive to an IV change than a one-week option.
• Smaller as expiration nears, since less time value is left to reprice.

Why it matters for traders

Vega explains why an option can lose money even when the stock moves the right way. Before earnings, an FDA decision or a trial readout, implied volatility rises and inflates option prices. Once the event passes, IV often collapses, and vega translates that drop directly into lost value: the IV crush.

Traders who want to bet on volatility itself, rather than direction, manage their vega exposure deliberately. Buying options before IV has risen and selling after it does is a volatility trade; selling expensive premium into an event is a bet that the realized move will be smaller than priced.

Example

Northwind Therapeutics (NWTX) trades at $30. The $30 call expiring in two months costs $4.00, with IV at 50% and a vega of 0.12.

• A late-stage trial readout is scheduled, and IV rises to 60% while the stock stays at $30. The call should rise by about 10 x $0.12 = $1.20, to roughly $5.20.
• After the readout, if the stock is unchanged and IV falls back to 50%, the call drops back toward $4.00, less any time decay.

FAQ

Is vega a real Greek letter?

No. Unlike delta, gamma and theta, vega is not a letter of the Greek alphabet, but it is grouped with "the Greeks" by convention.

Do puts and calls have the same vega?

For the same strike and expiration, calls and puts have essentially the same vega, since both gain value when implied volatility rises.