Example
It is now mid-April 2007, and you are considering going long a Sep07/May07 100 call spread, i.e. buy the Sep 100 call and sell the May 100 call. The Sep 100 call is offered at a 14.1% implied volatility and the May 100 call is bid at a 18.3% implied volatility. The vega of the Sep 100 call is 4.3 and the vega of the May 100 call is 2.3. Using the formula above, the net volatility of the spread is:
Read more about this topic: Net Volatility
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