VEGA DEEP DIVE
Plain English
Vega tells you how much your option's price changes when implied volatility changes by 1%. If you buy options before a big event and IV spikes, Vega works for you. If IV drops after the event (IV crush), Vega works against you.
Going deeper
Vega measures the option price sensitivity to a 1-percentage-point change in implied volatility. ATM options with more time to expiration have the highest Vega. Long options (bought) are long Vega — they benefit from IV increases. Short options (sold) are short Vega — they benefit from IV decreases. Vega is particularly important around earnings, where IV typically inflates beforehand and crushes afterward. Strategies like straddles are very Vega-sensitive.
Examples
IV Expansion
Your option has a Vega of 0.10. IV jumps from 25% to 35% (a 10-point increase). Your option gains $1.00 ($100 per contract) from Vega alone, even if the stock price doesn't change.
IV Crush After News
You bought a call before an FDA decision. Vega = 0.20, IV = 100%. The FDA approves the drug, but IV collapses to 40% (60-point drop). Vega effect: -$12.00 per share. Even though the stock went up $5, your option barely moved.