When purchasing a time spread, the investor should pay attention not only to the movement of the stock price but especially to the movement of volatility.
Volatility plays a very large roll in the price of a time spread and, as we have stated,
the time spread is an excellent way to take advantage of anticipated volatility movements in a hedged fashion.
Since the time spread is composed of two options, the investor should understand the role of volatility in options as well as in time spreads.
Let's start with option volatility.
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