Put and Call Spreads

Comparing Put & Call Spreads Volatility

By:Kai Zeng

What you need to know about wide and narrow put and call spreads

  • For index options, the premium for a call spread is approximately 50% higher than that of the put side.
  • While spreads with narrower wings may reduce the risk per unit, the return on capital (ROC) volatility is actually higher than with wide spreads.
  • Managing positions at 21 DTE can help reduce volatility by about 50%.

With uncertainty increasing in the markets, traders may opt for risk-defined strategies such as iron condors, put and call spreads. These approaches offer a clear understanding of potential losses, an essential factor.

Sold 30 Delta, Naked P/C

Note that unlike naked puts, which tend to be more expensive because of the put skew in indices, call spreads can collect about 50% more premium than put spreads. That’s because the call spread buys a cheaper, farther out-of-the-money (OTM) call, while the put side purchases a more expensive OTM put.


This raises two questions about volatility in these spreads:

  • Volatility tends to increase when the market goes down. Does that mean the volatility is higher in the put spread?
  • Does a tight spread have better volatility control? Does that imply the $1 wide spread has lower volatility than $5 and $10 wide ones?

To make a fair comparison, we used the same buying power for different wing sizes. We sold 30𝜟 naked SPY put/call and bought $1, $5 and $10 wide wings, choosing the standard 45-days-to-expiration (DTE).

Contrary to our assumptions, the call spreads actually exhibited higher volatility in all three scenarios. Also, the tightest spreads showed the greatest volatility. The wider the spread, the lower the volatility.

ROC Volatility

We observed a similar pattern when positions were managed at 21 DTE. However, the discrepancy between the put and call sides was minimized, and the volatility on both sides was reduced by approximately 50%.

ROC Volatility 2

Kai Zeng, director of the research team and head of Chinese content at tastylive, has 20 years of experience in markets and derivatives trading. He cohosts several live shows, including From Theory to Practice and Building Blocks. @kai_zeng1 

For live daily programming, market news and commentary, visit tastylive or the YouTube channels tastylive (for options traders), and tastyliveTrending for stocks, futures, forex & macro.

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