**Vega is the amount call and put prices will change, in theory, for a corresponding one-point change in implied volatility**. Vega does not have any effect on the intrinsic value of options; it only affects the “time value” of an option’s price. Vega values represent the change in an option’s price given a 1% move in implied volatility, all else equal. Long options & spreads have **positive vega**. Example strategies with long vega exposure are calendar spreads & diagonal spreads. Short options & spreads have **negative vega**. Some examples are short naked options, strangles, straddles and iron condors.

When thinking about vega, we have to remember that implied volatility is a reflection of price action in the option market. When option prices are being bid up by people purchasing them, implied volatility will increase. When options are being sold, implied volatility will decrease. With that said, when being long options we want the price of the option to *increase*. When being short options we want the price of the options to *decrease*. That is why **long options have a positive vega, and short options have a negative vega**. An increase in implied volatility will benefit the long option holder, as that indicates an increase in option pricing, hence the positive vega assignment. A decrease in implied volatility will benefit the short option holder, as that indicates a decrease in option pricing, hence the negative vega assignment.

Since we normally hold a short vega portfolio as option sellers, we are exposed to volatility increases. We have to be careful with this exposure as volatility generally has velocity to the upside. This means volatility can quickly spike up, as it usually has a negative correlation with the market, which tends to have velocity to the downside. Managing our vega is important to ensure that we don’t have more exposure than we’re comfortable with from a portfolio perspective.

Typically, as implied volatility increases, the value of options will increase. That’s because an increase in implied volatility suggests an increased range of potential movement for the stock.

Let’s examine a 30-day option on stock XYZ with a $50 strike price and the stock exactly at $50. Vega for this option might be .03. In other words, the value of the option might go up $.03 if implied volatility increases one point, and the value of the option might go down $.03 if implied volatility decreases one point.

Now, if you look at a 365-day at-the-money XYZ option, vega might be as high as .20. So the value of the option might change $.20 when implied volatility changes by a point .

Source: Tastytrade and Optionsplaybook