Options Glossary
Vega measures how much an option's price is expected to change for every one percentage point move in implied volatility, with everything else held constant. It's the Greek that tells you how exposed a position is to changes in the market's expectation of future movement, separate from the stock actually moving.
Vega is usually expressed as a dollar amount per contract. An option with a vega of 0.08 will gain roughly $8 in value per contract if implied volatility rises by one percentage point, and lose roughly $8 if implied volatility falls by one percentage point. Unlike delta, vega has no fixed 0-to-1 range, its size depends on the option's strike, time to expiration, and how far it is from the money.
Buying a call or a put makes a trader long vega, meaning the position gains value when implied volatility rises. Selling a call or a put makes a trader short vega, meaning the position gains value when implied volatility falls. This is why option sellers often benefit from an IV crush after an earnings announcement, while option buyers can lose money on vega alone even if the stock moves in the right direction.
Vega is highest for at-the-money options with a lot of time left until expiration, and it shrinks as expiration approaches. With little time left, there isn't enough runway left for a volatility change to matter much, so an option's price becomes driven almost entirely by the stock price and time decay instead.
Vega shows up in a few practical decisions: estimating how much an earnings-related IV crush will cost a long option position before it happens, choosing between buying options when IV is low versus selling them when IV is high, and measuring how much volatility risk a whole portfolio is carrying across multiple positions at once.