Vega displays the price change of an option due to a single point change in an underlying asset’s implied volatility. The impact of Vega is expressed in decimals of currency: it’s the actual amount the price will increase or decrease. A higher Vega means a higher price change per single point movement, a lower Vega means less. Note that Vega doesn’t change or modify the option’s actual value.
Vega represents both positive and negative change. If the implied volatility rises by 1 point, the price should increase by Vega. If implied volatility falls by 1 point, the price should decrease by Vega. A higher volatility level means the underlying asset will have more price movements, which is somewhat desirable for option holders. The more movement in price from volatility, the more likely a strong change will exceed the exercise price.
An option’s Vega can increase or decrease without resulting in price changes. The amount gained from volatility moves up or down without volatility itself actually changing. Vega can also change according to price movements. A rapidly moving underlying price can increase Vega, causing further impact on the actual option.
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