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All of these options are in the money. If the volatility suddenly dropped, all of these options would lose value, approaching their intrinsic value. But since the spreads are in the money, the actual spread values would go up, approaching 10.00. This is exactly the same effect as a drop in time. |
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When a vertical spread is in the money, a drop in volatility benefits the spread's value. |
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Neal: This vertical spread contract is really advanced options. |
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Don: Yes, but if you trade Chicago style, as I do, you must understand options, because you can gauge how volatile the futures will be. |
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Neal: Thanks for the lesson. |
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Don: That will cost you lunch. |
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Neal: Taco Bell, here we come. |
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