Knowledge
Understand core FX, risk, and execution concepts used across Okoora’s infrastructure.
American Trigger, Bid, At The Money (ATM) Option
Vega is an options Greek that measures an option’s price sensitivity to changes in implied volatility. It represents the amount by which the price of an option is expected to change for a 1% change in implied volatility, with all other variables held constant.
Vega reflects the impact of market sentiment and volatility expectations on an option’s premium. When implied volatility rises, option prices increase; when it falls, option prices decline. Vega is always positive for long options (buyers benefit from rising volatility) and negative for short options (sellers benefit from declining volatility).
Suppose an at-the-money call option is priced at $3.50 with a Vega of 0.15. If implied volatility increases from 25% to 26%, the option price rises to $3.65. If volatility drops to 24%, the price decreases to $3.35. Before earnings announcements, options often carry high implied volatility—after the event, this can drop significantly, resulting in a volatility crush and price drop even if the stock doesn’t move.
Vega is critical during events that could shift implied volatility—earnings, central bank decisions, or geopolitical news. Traders structure strategies around Vega exposure, including volatility arbitrage and straddles, and risk managers use it for stress testing portfolios. High Vega positions are common in longer-dated, at-the-money options.
