How Fear, News, and Silence Shape Option Prices
Volatility is the invisible force behind options pricing — it’s not what has happened, but what the market expects to happen that counts.
Vega measures how much an option’s price will change if implied volatility (IV) shifts by 1%.
It’s the heartbeat of news-driven trading — and it’s often misunderstood by newer traders.
🌪️ What is Vega?
If Vega = 0.20, then a 1% increase in implied volatility adds $0.20 to the option price.
Vega applies to both calls and puts.
Vega is higher for long-dated options and at-the-money options.
🧨 Implied Volatility vs. Real Volatility
Real volatility (historical) = What has happened.
Implied volatility = What the market thinks might happen.
The more uncertain the future, the more expensive options become.
⚠️ How Vega Affects Traders
🔺 Before Big Events (High Vega)
Options get expensive before earnings, CPI, Fed meetings, etc.
Traders buy options hoping for a big move.
But if volatility drops after the event (IV crush), the option can lose value even if you’re right on direction.
✅ Selling Options Into High Vega
Some traders sell premium before events — expecting IV to fall.
This is called volatility arbitrage — profit from overpricing, not direction.
🧠 Vega Buyers Must Be Right Twice
Be right on direction
Be right on timing and volatility
📈 Real-World Example – NAS100 Earnings Week
You buy a 21600 Call with Vega = 0.25
Implied volatility is 28% before earnings
After earnings, IV drops to 23%
Even if NAS100 rises, your option might drop in value due to the IV crush (5% drop × 0.25 Vega = $1.25 drop).
🧠 Titan Summary:
| 🧠 Greek | What It Means | Who Cares |
|---|---|---|
| Vega | Sensitivity to implied volatility | News/event traders, straddle/strangle users, option sellers pre-news |
🧱 Key Takeaways:
Vega = Volatility sensitivity
Volatility raises or drains option value fast
High Vega = Expensive options
Watch the VIX, IV%, and news calendar when planning entries
📌 Coming Next: Gamma – The Acceleration Factor
Explore how Delta changes — and how that impacts high-speed momentum trades and squeeze setups.
