The Volatility Gauge
Vega measures how much an option's price will change based on a 1% change in "Implied Volatility" (IV).
Vega represents the "fear" or "uncertainty" in the market. When people are scared, they pay more for insurance (options). When they are calm, option prices drop—even if the stock price stays perfectly still.
This is the classic Vega play. IV spikes before earnings because no one knows what will happen. Once the news is out, the uncertainty is gone. IV drops (the "Volatility Crush"). If you bought a call and the stock went up 2%, you might still lose money because the Vega drop sucked $200 out of the option's value.
If you have a multi-leg trade (like a Spread), you can calculate your Net Vega. Being "Short Vega" means you want the market to calm down; being "Long Vega" means you want the market to get wild.
IV Rank tells you where current implied volatility sits relative to its range over the past year. An IV Rank of 90% means options are expensive (90th percentile). An IV Rank of 10% means options are cheap (10th percentile).
Always check "IV Rank" before a trade. If IV Rank is 90%, options are expensive—be a seller. If IV Rank is 10%, options are "on sale"—be a buyer.
Buying options before earnings is often a losing trade even if you're right on direction. The IV crush after the announcement can erase your gains. If you must play earnings, consider spreads to reduce vega exposure.