778 Part VI: Measuring and Trading Volatility 
FIGURE 37-9. 
Bear put spread profit in 30 days. 
1000 IV= 30% 
Assignment 
Risk 
Area 
(/) 
(/) 
0 
...J 
~ 0 
e 70 80 110 120 130 140 
a. 
ff7 
IV= 80% 
-1000 
'~ 
Stock 
problem, though, since the spread would have widened to its maximum potential in 
that case and could just be removed when the risk of early assignment materialized. 
When implied volatility remains high, though, the spread doesn't widen out 
much, even when the stock drops a lot after 30 days. Since it is common for implied 
volatility to rise (even skyrocket) when the underlying drops quickly, the put bear 
spread probably won't widen out much. That may not be a psychologically pleasing 
strategy, because one won't make the level of profits that he had hoped to when the 
underlying fell quickly. 
Once again, it seems that the outright purchase of an option is probably superi­
or to a spread. In these cases, it is true with respect to puts, much as it was with call 
options. Spreading often unnecessarily complicates a trader's outlook. 
CALENDAR SPREADS 
In the earlier chapter on calendar spreads, it was mentioned that an increase in 
implied volatility will cause a calendar spread to widen out. Both options will become 
more expensive, of course, since the increase in implied volatility affects both of 
them, but the absolute price change will be greatest in the long-term option. 
Therefore, the calendar spread will widen. This may seem somewhat counterintu­
itive, especially where highly volatile stocks are concerned, so some examples may 
prove useful.