Vega

What vega measures

An option's price depends on how much the market expects the underlying to move, its implied volatility (IV). Vega puts a number on that: a vega of $114 means that if IV rises from 50% to 51%, the option gains about $114, with the price of BTC unchanged.

• Calls and puts at the same strike and expiry have the same vega.
• Owning options gives positive vega (you gain when IV rises); selling them gives negative vega.
• Vega is largest at the money and falls off toward the wings.

A worked example

The $100,000 BTC call with 30 days left and 50% IV is worth about $5,714 and has a vega of about $114. Repricing it at 51% IV gives $5,828: $114 more, as vega predicted. At 45% IV it would be worth about $570 less.

The same option with only 7 days left has a vega of about $55, and with 1 day left about $21. Longer-dated options have more vega because a change in expected volatility has more time to matter.

Vega and time

That last point is the basis of calendar spreads. A long calendar sells a near-dated option and buys a longer-dated one at the same strike: the long leg has more vega than the short one, so the position gains if IV rises, while the near option's faster time decay pays for the wait. The term structure of IV, how it differs by expiry, decides how each leg's vega actually plays out.

Vega of a position

Like the other Greeks, vega adds up across legs. A long straddle (buy a call and a put) has twice the vega of either option and is, among other things, a bet that IV will rise. A short strangle has negative vega: it profits as IV falls back after an event, and loses if the market starts pricing bigger moves. Vega is often the largest risk in an option position that looks delta-neutral.

Crypto specifics

Crypto implied volatility moves a lot. BTC's 30-day ATM IV has spent long stretches between 35% and 80%, and it can jump by several points around macro data, and by ten or more in a sharp sell-off. With a vega of $114, a ten-point jump is worth over $1,100 on a single $5,714 option. Before an event that the market expects to move prices, IV tends to rise; after it, IV usually falls back, whatever the price did. That drop is often what sinks an option buyer who guessed the direction right.