The option’s vega measures the local change in its price as implied volatility changes. Here it is quoted per one percentage-point change in annualized implied volatility, for example from 25% to 26%, rather than a 1% relative change.
Conventional long calls and puts generally gain value when implied volatility rises, with other inputs fixed. Multiplying vega by the volatility change gives a local estimate. Vega itself and the other pricing inputs can change, so the result is not an exact forecast.
Example
A stock XYZ is trading at $46 in May and a JUN 50 call is selling for $2. Let's assume that the vega of the option is 0.15 and that the underlying volatility is 25%.
If implied volatility rises by one percentage point, from 25% to 26%, the local estimate is $2 + $0.15 = $2.15 per share, assuming other inputs remain fixed.
If implied volatility instead falls by two percentage points, from 25% to 23%, the local estimate is $2 − (2 × $0.15) = $1.70 per share. These figures reuse the initial vega and are approximations.
Passage of time and its effects on the vega
Longer-dated options often have more vega than otherwise comparable shorter-dated options, especially near the money. The relationship depends on the strike, forward price and other inputs; the chart illustrates selected maturities rather than a guarantee for every contract.
The chart above depicts the behaviour of the vega of options at various strikes expiring in 3 months, 6 months and 9 months when the stock is currently trading at $50.
The charts illustrate model relationships with selected inputs held fixed. They are not current market quotes or universal curves for every option.
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Using the estimate
Greeks are local model sensitivities, not guaranteed price changes. They change as the stock, time and implied volatility change. Check whether a quoted value is per share or per contract, which volatility increment is used, and whether theta is measured per day or per year. Selling an option reverses the position’s Greek signs.
One point is not one percent of the current IV
With vega quoted as $0.12 per share for a one-percentage-point IV change, an increase from 20% to 23% is a three-point change. Four standard long contracts gain approximately $0.12 × 3 × 100 × 4 = $144 from that input alone. A 1% relative rise from 20% to 20.2% is only 0.2 percentage points and would produce about $9.60 under the same estimate.
For a calendar, suppose the later long leg has +$18 vega per point and the nearer short has −$10. A parallel two-point increase gives about +$16. If near IV instead falls five points while far IV falls two, the estimate is (+18 × −2) + (−10 × −5) = +$14. The sign and size depend on which maturity moves.
Vega is a local derivative, not a constant across large shocks. It changes with spot, time and volatility; vomma describes volatility curvature. State whether quoted vega is per share, per contract or per position and whether volatility is represented as a decimal or in percentage points.
