Here, the hedge-instrument is sensitive to the same source of volatility as the asset being protected (i.e. the same stock, commodity, or interest rate etc.).
The position is then established such that a change in the value of the protected-asset, is offset by a change in value of the hedge-instrument.
The number of hedge-instruments purchased, will be a function of the relative sensitivity to volatility of the two.
Here, the measure of sensitivity is vega,
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the rate of change of the value of the option, or option-portfolio, with respect to the volatility of the underlying asset.
Option traders often seek to create "vega neutral" positions, typically as part of an options trading strategy.
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(The value of an at-the-money straddle, for example, is extremely dependent on changes to volatility.)
Here the total vega of the position is (near) zero — i.e. the impact of implied volatility is negated — allowing the trader to gain exposure to the specific opportunity, without concern for changing volatility.
