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+Chapter 37: How Volatility Affects Popular Strategies 775 
+Overall, the bullish spread position is an attractive alternative to an outright call 
+purchase, especially when the call is overpriced. The spread does risk a greater 
+amount of money if the underlying stock should collapse heavily. Still, if one is truly 
+bullish, and if one employs a reasonably tight downside stop on his entire position, 
+this spread can perform better than the outright purchase of an overpriced call. 
+VERTICAL PUT SPREADS 
+Also of interest is the effect that implied volatility has on put spreads. One of the 
+more popular strategies involving puts is the sale of a credit spread - a bull spread 
+with puts. Assume that a stock is selling at 100, and one is going to sell a put with a 
+110 strike and buy a put with a 90 strike. That is a put credit (bull) spread. Also 
+assume that the options have four months of life remaining. (See Table 37-8.) 
+One would not rationally sell this credit spread if implied volatility were as low 
+as 20%, because at that low level of volatility, the in-the-money December llO put is 
+trading for 10 dollars - parity - and thus would immediately be at risk of early 
+assignment. But one can see that an increase in implied volatility increases the value 
+of the spread. Now, if one had sold this spread to begin with, he would thus be los­
+ing money when implied volatility increased. This was proven with call bull spreads, 
+too: They lose money when implied volatility increases. Conversely, of course, the 
+put credit spread makes money when implied volatility decreases. 
+What happens after thirty days have passed? Figure 37-8 shows just two cases 
+- implied volatility at 30% and implied volatility at 80%. One can surmise that other 
+levels of implied volatility between 30% and 80% would have profit graphs that lie 
+between the two shown in Figure 37-8. 
+TABLE 37·8 
+Implied 
+Volatility 
+20% 
+30% 
+40% 
+50% 
+60% 
+70% 
+80% 
+*Short option trading at parity 
+90-110 
+Put Bull Spread 
+(Theoretical Value) 
+9.15 er* 
+9.70 er 
+10.12 er 
+10.46 er 
+10.78 er 
+11.05 er 
+11.33 er