Vega

Vega is the measure of the sensitivity of the price of an option to the change in implied volatility of the underlying asset. It can be calculated as follows:

   Vega = Change in an option price/ Change in volatility of underlying asset
 

                                                                   OR
 

Where, V is the option’s price and σ is the volatility of the underlying asset.

Vega doesn’t have any effect on the intrinsic value of options, it only affects the time value of an option’s price. Value of an option increases with the increase in implied volatility. That’s because an increase in implied volatility indicates an increase in the range of potential movement for the stock. Hence, the vega of an option is positive.