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How much an option price changes when implied volatility changes.
Why It Matters
Vega measures sensitivity to volatility changes. When fear spikes (like during earnings), IV rises and options become more expensive. A vega of 0.10 means if IV rises 1%, your option gains $10 per contract. This is why buying options before earnings is risky - IV crush can wipe out gains.
Key Points
- Higher vega = more sensitive to volatility swings (good or bad)
- Longer-dated options have higher vega than short-term options
- Buy when IV is low, sell when IV is high - vega helps you time entries and exits
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Common Questions
How much an option price changes when implied volatility changes. Vega measures sensitivity to volatility changes. When fear spikes (like during earnings), IV rises and options become more expensive.
Vega measures sensitivity to volatility changes. When fear spikes (like during earnings), IV rises and options become more expensive. A vega of 0.10 means if IV rises 1%, your option gains $10 per contract. This is why buying options before earnings is risky - IV crush can wipe out gains.
Higher vega = more sensitive to volatility swings (good or bad)
Longer-dated options have higher vega than short-term options
Buy when IV is low, sell when IV is high - vega helps you time entries and exits