Vomma

In the wet and wild world of options trading, a vega value tells us how much an option’s price is likely to change based on the volatility of its underlying asset. The higher an option’s vega value is, the more its price is likely to jump or drop with every 1% change in volatility. And that’s really neat and all, but how do we tell how much the vega itself is likely to change? Well, that’s the job of something we call “vomma.” As an asset’s volatility changes, vomma measures the changes to vega.

So...why do we care? Well, let’s say we’ve got a positive vomma going on. If our underlying asset’s volatility increases, then vomma says vega will also increase. If that volatility decreases, then this same positive vomma says that vega will also decrease.

If it sounds a little confusing, think of it this way: a positive vomma just tells us that whatever direction the volatility is going in, the vega will also go. By contrast, a negative vomma tells us that the vega will do the opposite of what the volatility is doing. This can be really handy when we’re trying to choose our spreads, since we might be better able to tell how far in either direction the option’s price is likely to move.