Vega
Vega measures the sensitivity of an option's price to a one-percentage-point change in implied volatility, quantifying how much the premium rises or falls as volatility expectations shift.
Vega is the only major options Greek not named after a letter of the Greek alphabet — it is a Latin-derived term coined for the options pricing world. Despite this quirk, vega is among the most practically important Greeks, particularly around earnings announcements, Fed decisions, and other market-moving events where implied volatility can swing dramatically.
A vega of 0.15 means the option gains $0.15 per share ($15 per contract) for every one-percentage-point increase in implied volatility, and loses the same amount for a one-point decline. Long options (whether calls or puts) always have positive vega — rising volatility benefits buyers. Short options have negative vega — sellers are hurt when volatility rises because the options they sold become more expensive to buy back.
Vega is highest for at-the-money options with the most time remaining. Long-dated, ATM options have the largest vega because there is more time for volatility to manifest in a favorable move. As expiration approaches, vega shrinks because there is less time for volatility to matter. This is why LEAPS (long-term options with one to three years to expiration) are frequently used as pure volatility bets or as lower-cost stock substitutes — their high vega makes them highly sensitive to changes in the market's volatility expectations.
A key phenomenon affecting vega is the 'volatility crush' around earnings. Implied volatility inflates before an earnings report as market participants pay up for options to hedge or speculate. The moment earnings are released, implied volatility collapses regardless of whether the news is good or bad. Options buyers who hold through the announcement often find that even a correct directional bet produces a loss because the vega crush more than offsets the delta gain. This is why sophisticated traders frequently avoid holding long options through binary events unless the expected move is substantially larger than the priced-in volatility.
Conversely, selling options into high implied volatility (elevated vega) and profiting from the subsequent volatility crush is a popular strategy among experienced traders. Iron condors and short straddles placed before expected volatility-collapsing events aim to capture this vega premium.