Vega
The Vega measures the effect on an options theoretical value as a result of a change in volatility. Some books refer to
this measure as the Kappa, Omega, Zeta, or Sigma Prime (Sigma being the
commonly used notation for volatility). Since all options gain value with rising
volatility, the Vega for calls and puts is always a positive number. The Vega of
all options decreases as time to expiration grows shorter, so a long term option
will always be more sensitive to a change in volatility than a short term
option with the same exercise price. At-the-money options always have a greater Vega
than either in-the-money or out-of-the-money options with the same amount of
time to expiration. Out-of-the-money options have the greatest Vega as a percent
of their theoretical value.
Formula: