Chapter 40: Advanced Concepts 907 
Recall that a computer can perform a large number of Black-Scholes calcula­
tions in a short period of time. Thus, the computer can calculate each option's 
implied volatility and then perform the "percent deviation" calculation even faster. 
The strategist who is interested in establishing this type of neutral spread would only 
have to scan down the list of percent deviations to find candidates for spreading. On 
a given day, the list is usually quite short - perhaps 20 stocks and 10 futures contracts 
will qualify. 
SUMMARY 
In today's highly competitive and volatile option markets, neutral traders must be 
extremely aware of their risks. That risk is not just risk at expiration, but also the cur­
rent risk in the market. Furthermore, they should have an idea of how the risk will 
increase or decrease as the underlying stock or futures contract moves up and down 
in price. Moreover, the passage of time or the volatility that the options are being 
assigned in the marketplace - the implied volatility - are important considerations. 
Even changes in short-term interest rates can be of interest, especially iflonger-term 
options (LEAPS) are involved. 
Once the strategist understands these concepts, he can use them to select new 
positions, to adjust existing ones, and to formulate specific strategies to take advan­
tage of them. He can select a specific criteria that he wants to exploit - selling high 
volatility, for example and use the other measures to construct a position that has 
little risk with respect to any of the other variables. Furthermore, the market-maker 
or specialist, who does not want to acquire any market risk if he can help it, will use 
these techniques to attempt to neutralize all of the current risk, if possible.