So, if you think that implied volatility is likely to increase, you can set up a vertical spread by buying an at-the-money option and selling either the in-the-money or out-of-the-money option against it.
Conversely, if you feel implied volatility will decrease; you can set up a vertical spread by selling an at-the-money option and buy either an out-of-the-money or an in-the-money option against it.
As to how to set it up, you would follow the same guidelines as you would for setting up a vertical spread to take advantage of time decay.
Decide which direction you feel the stock would most likely move.
If you feel the stock would most likely rise, you will have to decide between buying a vertical call spread and selling a vertical put spread.
2008-02-12
Options Trading Mastery: Time Decay and Volatility Trading Opportunities (4)
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