47 lines
1.4 KiB
Plaintext
47 lines
1.4 KiB
Plaintext
768
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TABLE 37-6
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Implied
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Volatility
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20%
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30%
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40%
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50%
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60%
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70%
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80%
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Stock Price = I 00
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Part VI: Measuring and Trading VolatHity
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90-110 Call
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Bull Spread
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(Theoretical Value)
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10.54
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9.97
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9.54
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9.18
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8.87
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8.58
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8.30
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model, using the assumptions stated above, the most important of which is that the
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stock is at 100 in all cases in this table.
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One should be aware that it would probably be difficult to actually trade the
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spread at the theoretical value, due to the bid-asked spread in the options.
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Nevertheless, the impact of implied volatility is clear.
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One can quantify the amount by which an option position will change for each
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percentage point of increase in implied volatility. Recall that this measure is called
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the vega of the option or option position. In a call bull spread, one would subtract the
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vega of the call that is sold from that of the call that is bought in order to arrive at the
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position vega of the call bull spread. Table 37-7 is a reprint of Table 37-6, but now
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including the vega.
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Since these vegas are all negative, they indicate that the spread will shrink in
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value if implied volatility rises and that the spread will expand in value if implied
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TABLE 37-7
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90-110 Call
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Implied Bull Spread Position
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Volatility (Theoretical Value) Vega
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20% 10.54 -0.67
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30% 9.97 -0.48
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40% 9.54 -0.38
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50% 9.18 -0.33
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60% 8.87 -0.30
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70% 8.58 -0.28
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80% 8.30 -0.26 |