What is the role of "Vega" in options trading?

The role of "Vega" in options trading is to quantify an option's sensitivity to changes in the implied volatility of the underlying asset. Implied volatility reflects the market's expectations of how much the underlying asset's price will fluctuate over a certain period. A higher Vega indicates that the option's price is more sensitive to changes in implied volatility, meaning that if implied volatility rises, the option's price is likely to increase, while if it falls, the price is likely to decrease. This characteristic is crucial for traders who want to capitalize on volatility shifts or assess the risk of their options positions.

Other choices do not accurately represent the definition of Vega. For instance, measuring sensitivity to interest rates pertains to another Greek letter, Rho, while the rate of change of an option's price over time corresponds to Theta. Price potential of a trading strategy isn't captured by a single Greek letter but involves a broader analysis of various factors, including Delta, Gamma, and Vega itself. Therefore, Vega specifically addresses the relationship between an option’s price and the volatility of the underlying asset.