826 Part VI: Measuring and Trading Volatility 
TABLE 39-1 
January February April July October January LEAP 
Call price 1.25 2.25 3.50 5.00 6.00 7.15 
Put price 1.50 2.35 3.35 4.35 5.00 5.55 
Call delta 0.48 0.52 0.55 0.58 0.60 0.62 
Put delta -0.52 -0.48 -0.45 -0.42 -0.40 -0.38 
Neutral ~ 1-to-1 ~l-to-1 ~ 1-to-1 ~2-to-3 2-to-3 ~2-to-3 
Debit 2.75 4.60 6.85 23.05 27.00 30.95 
Upside break-even 42.75 44.60 46.85 51.57 53.50 55.47 
Downside break-even 37.25 35.40 33.15 32.30 31.00 29.68 
dar spread is too much of a burden"° either psychologically or in terms of commis­
sions, and so this strategy is only modestly used by volatility traders. Some traders will 
use the calendar spread if they don't see immediate prospects for an increase in 
implied volatility. They perhaps buy a call calendar slightly out-of-the-money and also 
buy a put calendar with slightly out-of-the-money puts. Then, if not much happens 
over the short term, the options that were sold expire worthless, and the remaining 
long straddle or strangle is even more attractive than ever. Of course, this strategy has 
its drawback in that a quick move by the underlying may result in a loss, something 
that would not have happened had a simple straddle or strangle been purchased. 
SELLING VOLATILITY 
If one were selling volatility (i.e., volatility is too high), his choices are more complex. 
Virtually anyone who has ever sold volatility has had a bad experience or two with 
either exploding stock prices or exploding volatility. Some of the concerns regarding 
the sale of volatility will be discussed at length later in this chapter. For now, the sim­
pler strategies will be considered, in keeping with the discussion involving the cre­
ation of a volatility trading position. 
Simplistically, a volatility seller would generally have a choice between one of 
two strategies (although there is a more complicated strategy that can be introduced 
as well). The simplest strategy is just to sell both an out-of-the-money put and an out­
of-the-money call. The striking prices chosen should be far enough away from the 
current underlying price so that the probabilities of the position getting in trouble 
(i.e., the probabilities that the underlying actually trades at the striking prices of the 
naked options during the life of the position) are quite small. Just as the option buyer