FAQ
Frequently asked questions.
Plain-English answers about option vega, portfolio vega, hedging, and how to read the Vega Exposure Score.
- What is portfolio vega?
- Portfolio vega is the combined vega exposure across all option positions in a portfolio. It is computed by summing the signed dollar vega of each position (positive for long options, negative for short options). Portfolio vega tells you how much the portfolio's mark-to-market value would change if implied volatility moved by one percentage point, holding other inputs constant.
- Is vega the same for calls and puts?
- Yes. Under the Black-Scholes model, a call and a put with the same strike, expiration, and underlying have identical vega. This is a consequence of put-call parity. The position's direction (long vs short) determines whether vega works for or against you, but the magnitude per contract is the same.
- Why is short vega risky during volatility spikes?
- Short option positions lose money when implied volatility rises. In a volatility spike, IV can rise 10, 20, or even 50 percentage points in a short window. A short straddle that looks like a small position under normal conditions can become a multi-percent loss against a portfolio when IV jumps. This is why short-vol strategies are often described as picking up pennies in front of a steamroller.
- How do you hedge vega?
- Vega is hedged by adding offsetting option positions: if a portfolio is net short vega, buying options of similar maturity adds long vega. Hedges are not free and rarely perfect, since real implied volatility surfaces have skew and term structure and a single hedge instrument typically does not exactly mirror the position's exposure across strikes and expirations. Variance swaps and VIX-related instruments are used for more direct vol hedging.
- Is vega additive across positions?
- Vega is additive in dollar terms across positions on the same underlying. Long-call vega and short-put vega on the same name can be summed (with appropriate signs) to get net exposure. Across different underlyings, the dollar vegas can also be summed to get a portfolio total, but that total ignores correlations between underlyings — a portfolio of options on highly correlated names is more concentrated than the simple sum suggests.
- Does vega change with time to expiration?
- Yes. Vega scales roughly with the square root of time to expiration, so longer-dated options have more vega than shorter-dated ones. A 90-day at-the-money option has roughly 1.7× the vega of an otherwise identical 30-day option. As an option approaches expiration, its vega decays toward zero.
- Why is vega higher for at-the-money options?
- Vega peaks near at-the-money because that is where the option's price is most sensitive to changes in the volatility input. Deep in-the-money and deep out-of-the-money options behave more like the underlying or like cash respectively, leaving less room for volatility to change the price. The vega curve across strikes is roughly bell-shaped, centered at the at-the-money strike.
- What is the difference between vega and implied volatility?
- Implied volatility (IV) is the volatility input that, when plugged into an option pricing model, produces the option's market price. Vega is the option's sensitivity to that input — how much the option's price changes per one percentage point change in IV. IV is a level; vega is a derivative with respect to that level.
- Is the Vega Exposure Score an industry standard?
- No. The Vega Exposure Score on VegaMetric.com is a simple educational framing for understanding volatility exposure relative to portfolio size. The underlying calculation (vega per contract × contracts × multiplier × IV move, divided by portfolio value) is standard arithmetic, but the Low / Moderate / Elevated / High thresholds are heuristic and chosen for retail-scale interpretability. See the methodology page for the full breakdown.
- Can vega exposure be negative?
- Yes. A position is net short vega when it loses value as implied volatility rises. Short calls, short puts, short straddles, short strangles, iron condors, and most credit spreads are net short vega. The Vega Exposure Score reports the absolute size of the impact for the category, but the underlying impact figure carries the appropriate sign.