Vega And Time To Expiry

Changes in Vega with respect to change in days to expiry

Assuming spot at 16500, volatility 17%

For all the options with different time to expiration, Vega always behaves the same way i.e. Vega of ATM options is always higher than deeper ITM and OTM options.

This makes sense because ATM options have the highest time value component, and a change in expected volatility will only affect the time value portion of the option. In a comparison between ITM and OTM options, volatility changes will have a greater effect on OTM options than on ITM options. This is because OTM options are comprised of only time value while ITM options are comprised of intrinsic value plus time value. The deeper the ITM options, the smaller the portion of time value it will have.