The Greeks
What is Vega (ν)?
Measures how much an option price changes with a 1% change in implied volatility.
📖 Complete Definition
Vega measures option sensitivity to changes in implied volatility. A vega of 0.15 means the option price increases by $0.15 for every 1 percentage point increase in IV. Vega is highest for ATM options with longer time to expiration. Understanding vega is crucial for volatility trading and avoiding "IV crush" after events like earnings.
📐 Formula
ν = ∂V/∂σ (partial derivative of option value with respect to implied volatility)
💡 Examples
- →Before earnings, IV rises and option prices increase (positive vega effect)
- →After earnings, IV drops sharply causing "IV crush" losses even if direction is correct
❓ Frequently Asked Questions
What is IV crush and how does vega relate?
IV crush is the rapid drop in implied volatility after an event like earnings. High vega options lose significant value from this IV collapse, even if the stock moves in your favor.
🔗 Related Terms
Put Your Knowledge to Practice
Use our free options tools to analyze trades, calculate Greeks, and visualize profit/loss scenarios.