# Vega

Vega is the rate of change of an option price relative to a change in volatility. It is one of the greek factor sensitivities used to measure exposures in derivatives portfolios.^{[1]}

Vega is quoted in a way to demonstrate the theoretical price change for every 1 percentage point change in volatility.^{[2]} For example, if the theoretical price is 2.5 and the Vega is showing 0.25, then if the volatility moves from 20% to 21% the theoretical price will increase to 2.75.

Vega is the only greek option value that isn't represented by a real Greek letter.^{[3]} Vega is sometimes called kappa.^{[4]}

The higher the volatility the higher the option prices. The reason for this is that higher volatility means a greater price swings in the stock price, which translates into a greater likelihood for an option to make money by expiration.

With positive Vega, the value of a long option increases when implied volatility increases; it decreases when volatility decreases.

With negative Vega, the value of a short option decreases when implied volatility rises; it increases when volatility goes lower.^{[5]}

## Resources[edit]

- Option Volatility & Pricing by Sheldon Natenberg ISBN 155738486X
- Dynamic Hedging by Nassim Taleb ISBN 0471152803
- Options As a Strategic Investment by Lawrence G. McMillan ISBN 0735202389

## References[edit]

- ↑ Vega. Riskglossary.com.
- ↑ Option Vega. Option Trading Tips.
- ↑ The Greeks" What they are and how to use them. Thinkorswim.
- ↑ Vega. Riskglossary.com.
- ↑ Options Indicators (the Greeks): Vega. QQQOptionsTrading.com.