The change in the price of an option for a change in the implied volatility of the option, all else held equal. In general, as the options market thinks it is more difficult to value a stock, implied volatility and therefore the price of the options will increase. For example, if an option is trading for $1, the implied volatility is 20%, and the vega is $0.05, then a one-percentage-point increase in implied volatility to 21% would correspond to an increase in the price of the option to $1.05. In percentage terms, the vega in this case would be ($0.05/$1.00)/(1 percentage point) = 5%.
Sponsored Links
