◈ GLOSSARY · TRADING & MARKETS
Vega (Options Greek).
A definition, in plain English — with the books that teach it.
ClearValue Books · reviewed against sources ·
◈ DEFINITION
What it means
Definition
How much an option's price changes for a 1-point move in implied volatility. Long options are long vega — they gain value when IV rises and lose value when it falls. This is why options bought right before an earnings event often drop in price even when the stock moves in your direction: IV collapses after the announcement (the IV crush).
◈ IN PRACTICE
Example
You buy a call for $4.00 with a vega of 0.15. IV drops 5 points after earnings. The vega component alone takes 75 cents off the option's price — $75 per contract — before any move in the stock is counted.
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