Volga
How vega changes when implied volatility moves — also called vomma.
Volga (also called vomma or vega convexity) measures the rate of change of vega with respect to changes in implied volatility. It tells you how your vega exposure itself changes as IV moves. If a position has positive volga, its vega increases as IV rises — meaning the position benefits at an accelerating rate from further IV expansion. Volga is a second-order Greek that captures the curvature of the option's sensitivity to volatility.
Why It Matters
Volga matters because vega alone gives you an incomplete picture of your volatility exposure. Vega tells you how much you gain or lose for a 1-point change in IV, but volga tells you whether that sensitivity grows or shrinks as IV continues to move. During extreme volatility events — market crashes, VIX spikes, black swan moves — volga determines whether your vega exposure accelerates in your favor or against you.
For traders who sell options, volga is often negative, meaning their vega exposure worsens as IV rises. Their losses from rising IV accelerate rather than staying linear. For long option holders (especially far OTM options), volga is positive, meaning they benefit more from each additional point of IV expansion. This convexity is a key reason why far OTM options can produce outsized returns during extreme events.
How It Works
Volga is the second derivative of the option price with respect to IV, or equivalently, the first derivative of vega with respect to IV.
How volga varies by moneyness:
- ATM options: Volga is near zero. ATM options have the highest vega, but that vega is relatively stable as IV changes.
- OTM and ITM options: Volga is highest for options that are away from the money. These options see their vega increase as IV rises and decrease as IV falls.
- Far OTM options: Have the highest volga relative to their premium. This is the "lottery ticket" effect — far OTM options become much more sensitive to volatility as IV rises.
Practical implications:
- A long strangle (buying OTM call and OTM put) has positive volga — it benefits from vega expansion as IV increases
- A short straddle (selling ATM call and ATM put) has near-zero volga because ATM options have low volga
- A short strangle has negative volga — losses from IV expansion accelerate
Volga and the volatility smile: Volga is one of the reasons the volatility smile exists. Market makers price OTM options with extra premium to compensate for the volga risk they take when selling those options. This is especially true for OTM puts, where crash risk creates significant volga exposure.
Quick Example
You own a far OTM call on stock PQR with a vega of 0.05 and volga of 0.03. IV is at 25%. If IV rises 1 point to 26%, your option gains approximately $0.05 per share from vega. But if IV then rises another point to 27%, your vega has increased to 0.08 (0.05 + 0.03), so the second point of IV gives you $0.08 per share.
By the time IV has risen 10 points to 35%, your vega has expanded significantly. The total gain is much larger than 10 x $0.05 = $0.50 because volga caused your vega to grow along the way. This convexity is why tail-risk hedges using far OTM options can produce explosive returns during volatility spikes.