How to Calculate the Volatility of the Spread in Options Trading(2)

If you wanted to move the August 70 calls instead, you would take the August 70 call vega of .08 and multiply it by the four tick implied volatility difference.


This gives you a value of $.32 that must be added to the August 70 call's present value in order to bring it up to an equal volatility (40) with the June 70 call.


Adding the $.32 to the August 70 call will give it a $3.32 value at the new volatility level of 40 which is the same volatility level as the June 40 calls.


Now, our spread is worth $1.32 at 40 volatility.


August 70 calls at $3.32 minus the June 70 calls at $2.00 gives the price of the spread at 40 volatility.


It does not make any difference which option you move.


The point is to establish the same volatility level for both options.


Then you are ready to compare apples to apples and options to options for an accurate spread value and volatility level.