Options
Vega — Definition & Example
The change in option premium per 1% change in implied volatility — sensitivity to volatility shifts.
Vega measures how option price responds to changes in implied volatility. Long options have positive vega (gain when IV rises); short options have negative vega. Vega is highest for ATM options and longer-dated options. A volatility crush (IV dropping after an event) destroys long-option value even when the underlying moves favourably — a common surprise for traders buying calls before earnings.
Example
NIFTY 24500 CE with vega 8 means a 1% rise in implied volatility adds ₹8 to the option price. Conversely, after a major event when IV drops 5%, the option loses ₹40 even if the underlying is unchanged.
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