Vega is the change in an option price given a change in implied volatility. When selling premium in low-implied-volatility environments, it's important to understand how Vega would affect positions if volatility expands. In this segment, Tom and Tony discuss the meaning of Vega and how to hedge this risk using short delta.
On average, a 1% selloff in the market (SPY) equates to a 1 point increase in VIX. Using this ratio, we can determine how much short delta can offset the losses from a volatility expansion. To find the needed delta, divide the portfolio's Vega by 1% of the current SPY price.
For example: A portfolio with -100 Vega can be hedged with -46 SPY beta-weighted delta. (-100 / 217*1%) = -46 SPY delta