Vomma is one of the options greeks which are collectively used to determine how closely an options or warrants contract will track its underlying market. Specifically, vomma is the rate at which the vega (v) of an options or warrants contract will change in relation to the volatility of its underlying market. Vomma is one of the second order derivatives, but because it is related to one of the most used first order derivatives (vega), it is also one of the most useful options greeks (depending upon the type of trade being made).
Vomma is the second derivative of the value (V) of an options or warrants contract, with respect to the volatility of the underlying market. Vomma is calculated as shown in the above calculation image.
Use In Trading
Vomma is the rate that the vega of an options or warrants contract will change as the volatility of the underlying market increases or decreases.
Vega (not vomma) is an important options greek for options strategies that make or lose money based upon volatility (e.g. long straddles, etc.). Vomma is used to determine the rate at which the vega will change as the volatility of the underlying market changes, and is therefore also useful for volatility based options strategies.