Vega

Vega is a measure of how much an option's price is expected to change when implied volatility moves, with everything else held constant. It belongs to a group of risk measures called "the Greeks," each of which isolates how sensitive an option's price is to a different factor — vega's job is volatility.

Implied volatility is the market's guess, baked into the option's price, of how much the underlying stock or index is likely to swing over the life of the option. It is not a directional forecast; it says nothing about whether the price will go up or down, only how much movement traders are pricing in. When that expected-movement estimate rises, options generally become more expensive, because a bigger expected swing makes it more likely the option finishes profitable. Vega quantifies that link: an option with a vega of 0.10 would be expected to gain about $0.10 in price for each one-percentage-point increase in implied volatility, and lose roughly the same for a one-point decrease.

The nuance that trips people up is that vega is highest for options with more time until expiration and for options whose strike price is close to the current stock price (at-the-money). As expiration approaches, vega shrinks toward zero — a one-day option barely cares about volatility because there is almost no time left for that volatility to matter. This is also why vega is not constant: it changes as the stock price moves, as time passes, and as volatility itself changes, so a position's vega exposure needs to be rechecked rather than assumed fixed.

Another point of confusion: vega measures sensitivity to *implied* volatility, the priced-in expectation, not to the stock's actual historical or realized volatility. A stock can be moving wildly in real life while implied volatility (and the vega-driven part of an option's value) falls, if the market expects things to calm down.