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Options Jive

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Dynamic Spreads and Implied Volatility

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

When trading spreads we can choose to set our strikes based on a dollar width or a delta width. Although the decision seems trivial, it does have an impact on the trade structure. The primary distinction being that the dollar width of dynamic spreads scales with the underlying price.

Another distinction is that the dollar width of dynamic spreads increases with the level of implied volatility. One similarity of the two strategies is that the short options of both static and dynamic spreads becomes further out of the money as the level of implied volatility increases.

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