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Forward volatility across the term structure · Part 3 of 3
On one stock, one-month implied volatility is 30% and three-month implied volatility is 24%. Treat the months as equal-length and ignore rates.
You put on that calendar spread with the vega of the two legs matched. What is its main risk over the next week?
- AA sharp move in the stock
- BA parallel rise in implied volatility at every expiry
- CA slow, quiet week in which nothing happens and both options lose their time value
- DA cut in interest rates by the central bank
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