vega
n. C / Un. a measurement used in finance to show how much an option's price changes when market volatility moves. It helps traders understand the risk of prices jumping up or down suddenly.
n. the rate of change in the value of an option's price relative to a one-percentage-point change in the implied volatility of the underlying asset. It represents a key risk metric within the Black-Scholes model.
The trader checked the vega of his portfolio before the news release.
Because the portfolio had high positive vega, the investor stood to profit significantly if market uncertainty increased.
Institutional traders often hedge their vega exposure to ensure that sudden spikes in market turbulence do not disproportionately erode the extrinsic value of their long option positions.
From Medieval Latin, from Arabic وَاقِع (wāqiʕ, “falling”), from the expression النَّسْر الوَاقِع (an-nasr al-wāqiʕ, “falling eagle”). The active participle وَاقِع (wāqiʕ) derives from the verb وَقَعَ (waqaʕa, “fall, drop, tumble, alight, pounce”).
From Spanish vega (“meadow, fertile lowland”).