Definition of vomiting

By Mark Holland / a couple of months ago

What is Vomma?

Vomma is the speed at which an option’s vega will react to market volatility. Vomma is part of the group of measures, such as delta, gamma and vega, known as “greeks”, that are used in option pricing.

Key takeaways

• Vomma is the speed at which an option’s vega will react to market volatility.
• Vomma is a second-order derivative for the value of an option and shows the convexity of vega.
• Vomma is part of the group of measures, such as delta, gamma and vega, known as “greeks”, that are used in option pricing.

Understanding Vomma

Vomma is a second-order derivative for the value of an option and shows the convexity of vega. A positive value for vomma indicates that an increase of one percentage point in volatility will result in an increase in the value of the option, which is demonstrated by the convexity of vega.

Vomma and Vega are two factors involved in understanding and identifying profitable option trades. The two work together to provide details about the price of an option and the sensitivity of the option price to market changes. They can influence the sensitivity and interpretation of the Black-Scholes pricing model for option pricing.

Vomma is a second order Greek derivative, which means that its value provides information on how vega will change with the implied volatility (IV) of the underlying instrument. If a positive vomma is calculated and volatility increases, vega in the option position will increase. If volatility falls, positive vomiting would indicate a decrease in Vega. If vomma is negative, the opposite occurs with volatility changes as indicated by the vega convexity.

In general, investors with long options should look for a high, positive value for vomma, while investors with short options should look for a negative one.

The formula for calculating vomiting is as follows: