Options trading
Vega
Definition
Vega is the estimated change in an option's price for a one-point change in implied volatility. Option buyers lose from a drop in implied volatility, as often happens after earnings.
Example
Say a call costs $4.00 with implied volatility at 50% and a vega of 0.12. If IV drops to 40% after an earnings report, that 10-point fall takes about $1.20 off the price, leaving roughly $2.80, or $120 less per contract, even if the stock has not moved. A 10-point rise in IV would add about the same amount.
Hypothetical numbers, for illustration only.
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