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Vega

The change in an option's price for a one-percentage-point change in implied volatility.

Formula Vega = Change in Option Price / Change in Implied Volatility (per 1 percentage point)
Unit ₹

In depth

Vega is positive for both calls and puts held long, because higher volatility raises the value of optionality regardless of direction. It is largest for at-the-money options with substantial time remaining and falls toward zero as expiry approaches, which is why long-dated options are the instruments for expressing a view on volatility. The event risk it captures is the reason an option can lose value on good news: implied volatility collapses once the uncertainty resolves. Vega is not a Greek letter, despite the naming convention of the others — a small piece of trivia that reflects the term's trading-floor origin.

Worked example

An option with vega of 15 loses 15 x 3 = 45 points if implied volatility falls from 17% to 14%. On a lot of 75 that is ₹3,375 lost with the underlying completely unchanged.

Illustrative figures, chosen so the arithmetic is easy to follow. Not a live price and not a valuation of any company.

Educational reference only

This entry explains what “Vega” means. It is not investment advice and not a recommendation to buy or sell any security. Any numbers above are illustrative, not live prices, and nothing here predicts price direction or rates a stock. Consider your own circumstances and consult a SEBI-registered investment adviser before acting.