Vega is quoted in a way to demonstrate the theoretical price change for every 1 percentage point change in volatility. For example, if the theoretical price is 2.5 and the Vega is showing 0.25, then if the volatility moves from 20% to 21% the theoretical price will increase to 2.75.
The higher the volatility the higher the option prices. The reason for this is that higher volatility means a greater price swings in the stock price, which translates into a greater likelihood for an option to make money by expiration.
With positive Vega, the value of a long option increases when implied volatility increases; it decreases when volatility decreases.
With negative Vega, the value of a short option decreases when implied volatility rises; it increases when volatility goes lower.
- Option Volatility & Pricing by Sheldon Natenberg ISBN 155738486X
- Dynamic Hedging by Nassim Taleb ISBN 0471152803
- Options As a Strategic Investment by Lawrence G. McMillan ISBN 0735202389