Vega

Vega is one of the option Greeks, and it measures how much an option's price is expected to change for a one percentage point change in the underlying stock's implied volatility, holding everything else constant. It captures how sensitive an option's premium is to the market's expectation of future price swings, separate from any actual movement in the stock itself.

Both call options and put options have positive vega, meaning their prices rise when implied volatility rises and fall when implied volatility falls, since higher expected volatility increases the odds of a large favorable move before expiration. Vega tends to be highest for at the money options and for options with more time until expiration, since there is more time and more room for volatility to matter, and it shrinks as expiration approaches, which is why longer dated options are generally more sensitive to shifts in volatility than short dated ones.

Vega matters most around events that can cause a sudden jump in implied volatility, such as earnings reports, economic data releases, or broad market stress. An option can gain value purely because implied volatility spiked, even if the stock price barely moved, and it can lose value just as quickly once that volatility fades, a pattern often described as an implied volatility crush after an anticipated event has passed. Traders running strategies like straddles or strangles are often making a vega-driven bet on volatility itself, rather than a directional bet on where the stock is headed.