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Why do back months options have a higher vega than front month options? If possible , kindly explain on an intuitive level without a lot of math.

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Intuitive, no math explanation:

Imagine two call options, option A expiring tomorrow and option B expiring in two months. Both of the options are way out of the money and have the same strike price.

Due to some event the implied volatility of the stock spikes. Let's assume stock price stays the same. Does the chances of option A expiring in the money change much? NO, there is not enough time for the volatility to be realized. However, option B is now more valuable as there is "realistic" chances that it will expire in the money.

Check out this link for more information.

Math explanation for other users:

$$ \nu = S \sqrt{T} \phi (d_1) $$

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  • $\begingroup$ That link was awesome! $\endgroup$ – Victor123 Feb 28 '15 at 15:45

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