Vertical Stock Options Spread (part 2)
Factors That Affect Stock Options Spread Pricing The out-of-the-money vertical stock options spread (June 70 75) has the opposite effect of the in-the-money vertical spread (June 60 65). As volatility increases, the value of the out-of-the-money vertical spread will increase. This is because the increase in volatility assumes that the stock price will be more likely to move and thus the out-of-the-money vertical call stock options spread will be more likely to finish in-the-money. Because of the increased potential of this spreads ability to finish in-the-money, the value of the stock options spread will increase. However, if volatility decreases, the value of the stock options spread will decrease. The rule of thumb is that when volatility increases, an out-of-the-money vertical spreads value increases. When volatility decreases, the spreads value decreases.
05-25-2006
