Which of the following describes what "Vega" measures in options?

Vega measures the sensitivity of an option's price to changes in the volatility of the underlying asset. Specifically, it indicates how much the price of an option is expected to rise or fall as the volatility of the underlying asset changes by one percentage point. This is particularly important for options traders because volatility can significantly impact options pricing; higher volatility generally leads to higher option premiums due to the increased potential for price movement in the underlying asset.

Understanding Vega is crucial for managing risk in options trading because it helps traders gauge the effects of market conditions on the value of options. Options tend to be more valuable in volatile markets, and so knowing how an option’s price will respond to changes in volatility allows traders to make informed decisions regarding hedging and speculative strategies.

In contrast to the other options given, which relate to different sensitivity measures (such as volume, time decay, or interest rates), Vega specifically focuses on volatility, making it the appropriate description for what this term quantifies in the context of options trading.