Vega

Definition

Vega in plain English

Vega measures how much an option's price changes when the market gets more or less jittery — that jitteriness is called volatility, meaning how wildly the underlying thing's price swings. Since an option is a bet that pays off on big moves, more expected turbulence makes it more valuable, so a high Vega means the option is very sensitive to shifts in that expected wildness. Imagine betting that a dice-like stock lands on an extreme number: the shakier and more unpredictable it becomes, the better your chances, so your bet is worth more. Options with lots of time left tend to have the biggest Vega, because there's more room for volatility to matter.

Related Quantitative Finance terms

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• Information ratio
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