Chapter 37: How VolatHity Afleds Popular Strategies 769 volatility decreases. Again, these statements may seem contrary to what one would expect from a bullish call position. Of course, it's highly unlikely that implied volatility would change much in the course of just one day while the stock price remained unchanged. So, to get a bet­ ter handle on what to expect, one really to needs to look at what might happen at some future time (say a couple of weeks hence) at various stock prices. The graph in Figure 37-3 begins the investigation of these more complex scenarios. The profit curve shown in Figure 37-3 makes certain assumptions: (1) The bull spread assumes the details in Assumption Set 1, above; (2) the spread was bought with an implied volatility of 20% and remained at that level when the profit picture above was drawn; and (3) 30 days have passed since the spread was bought. Under these assumptions, the profit graph shows that the bull spread conforms quite well to what one would expect; that is, the shape of this curve is pretty much like that of a bull spread at expiration, although if you look closely you'll see that it doesn't widen out to nearly its maximum gain or loss potential until the stock is well above llO or below 90 the strike prices used in the spread. Now observe what happens if one keeps all the other assumptions the same, except one. In this case, assume implied volatility was 80% at purchase and remains at 80% one month later. The comparison is shown in Figure 37-4. The 80% curve is overlaid on top of the 20% curve shown earlier. The contrast is quite startling. Instead of looking like a bull spread, the profit curve that uses 80% implied volatili- FIGURE 37-3. Bull spread profit picture in 30 days, at 20% IV. 1000 500