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+Cbapter 37: How Volatility Affects Popular Strategies 771 
+high implied volatility situations, the bull spread won't expand out to its maximum 
+price until expiration draws nigh. That can be frustrating and disappointing. 
+Often, the bull spread is established because the option trader feels the options 
+are "too expensive" and thus the spread strategy is a way to cut down on the total 
+debit invested. However, the ultimate penalty paid is great. Consider the fact that, 
+if the stock rose from 100 to 130 in 30 days, any reasonable four-month call pur­
+chase (i.e., with a strike initially near the current stock price) would make a nice 
+profit, while the bull spread barely ekes out a 5-point gain. To wit, the graph in 
+Figure 37-5 compares the purchase of the at-the-money call with a striking price of 
+100 and the 90-110 call bull spread, both having implied volatility of 80%. Quite 
+clearly, the call purchase dominates to a great extent on an upward move. Of course, 
+the call purchase does worse on the downside, but since these are bullish strategies, 
+one would have to assume that the trader had a positive outlook for the stock when 
+the position was established. Hence, what happens on the downside is not primary 
+in his thinking. 
+The bull spread and the call purchase have opposite position vegas, too. That is, 
+a rise in implied volatility will help the call purchase but will harm the bull spread 
+( and vice versa). Thus, the call purchase and the bull spread are not very similar posi­
+tions at all. 
+If one wants to use the bull spread to effectively reduce the cost of buying an 
+expensive at-the-money option, then at least make sure the striking prices are quite 
+FIGURE 37-5. 
+Call buy versus bull spread in 30 days; IV = 80%. 
+Cl) 
+~ 
+2500 
+2000 
+1500 
+1000 
+e 500 
+Cl. 
+-500 
+-1000 
+Outright Call Buy 
+Bull Spread 
+---
+140 
+Stock