Vega

Options become more valuable when the market expects larger price swings, because there is a greater chance they will end up profitable. Vega measures this sensitivity to changes in expected volatility.

For example, an option with a vega of 0.15 would be expected to gain about 0.30 in value if implied volatility rose by two percentage points, say from 20% to 22%, with everything else unchanged.

Vega is highest for at-the-money options with longer times to expiry, since there is more time for volatility to affect the outcome. It falls as expiry approaches. Option buyers have positive vega and benefit from rising volatility, while sellers have negative vega.

Vega is particularly important around events such as earnings announcements, when implied volatility often rises beforehand and falls sharply afterwards. An option buyer may correctly predict the direction of a share price move but still lose money if the drop in implied volatility outweighs the gain. Despite its name, vega is not actually a Greek letter.