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training_data/curated/text/f72ab0c0db0770cb15e2f6617f76627e4c902c6b2f462fc23554dfbc44459a2e.txt

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+EXHIBIT 11.7 10-lot July–September 165 call calendar.
+But just looking at the net position greeks doesn’t tell the whole story. It
+is important to appreciate the fact that long calendar spreads such as this
+have long vegas. In this case, the vega is +1.522. But what does this number
+really mean? This vega figure means that if IV rises or falls in both the July
+and the September calls by the same amount, the spread makes or loses
+$152 per vol point.
+George’s plan, however, is to see the July’s volatility decline to converge
+with the September’s. He hopes the volatilities of the two months will move
+independently of each other. To better gauge his risk, he needs to look at the
+vega of each option. With the stock at $164.15 the vegas are as follows:
+If George is right and July volatility declines 8 points, from 46 to 38, he
+will make $1,283 ($1.604 × 100 × 8).
+There are a couple of things that can go awry. First, instead of the
+volatilities converging, they can diverge further. Implied volatility is a slave
+to the whims of the market. If the July IV continues to rise while the
+September IV stays the same, George loses $160 per vol point.
+The second thing that can go wrong is the September IV declining along
+with the July IV. This can lead George into trouble, too. It depends the
+extent to which the September volatility declines. In this example, the vega
+of the September leg is about twice that of the July leg. That means that if
+the July volatility loses eight points while the September volatility declines
+four points, profits from the July calls will be negated by losses from the
+September calls. If the September volatility falls even more, the trade is a
+loser.