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+Implied Volatility (IV) and Vega
+The volatility component of option values is called implied volatility (IV).
+(For more on implied volatility and how it relates to vega, see Chapter 3.)
+IV is a percentage, although in practice the percent sign is often omitted.
+This is the value entered into a pricing model, in conjunction with the other
+variables, that returns the option’s theoretical value. The higher the
+volatility input, the higher the theoretical value, holding all other variables
+constant. The IV level can change and often does—sometimes dramatically.
+When IV rises or falls, option prices rise and fall in line with it. But by how
+much?
+The relationship between changes in IV and changes in an option’s value
+is measured by the option’s vega. Vega is the rate of change of an option’s
+theoretical value relative to a change in implied volatility . Specifically, if
+the IV rises or declines by one percentage point, the theoretical value of the
+option rises or declines by the amount of the option’s vega, respectively.
+For example, if a call with a theoretical value of 1.82 has a vega of 0.06 and
+IV rises one percentage point from, say, 17 percent to 18 percent, the new
+theoretical value of the call will be 1.88—it would rise by 0.06, the amount
+of the vega. If, conversely, the IV declines 1 percentage point, from 17
+percent to 16 percent, the call value will drop to 1.76—that is, it would
+decline by the vega.
+A put with the same expiration month and the same strike on the same
+underlying will have the same vega value as its corresponding call. In this
+example, raising or lowering IV by one percentage point would cause the
+corresponding put value to rise or decline by $0.06, just like the call.
+An increase in IV and the consequent increase in option value helps the
+P&(L) of long option positions and hurts short option positions. Buying a
+call or a put establishes a long vega position. For short options, the opposite
+is true. Rising IV adversely affects P&(L), whereas falling IV helps.
+Shorting a call or put establishes a short vega position.