Hey, Steve:I love your work on RealMoney and especially enjoyed your most recent article on calendar spreads and volatility. I am new to options and have a question: Where does one go to find the implied volatility for a specific strike price? Is there a Web site that has the implied volatility for every optionable stock? And if so, is it free? Thanks in advance, just a newbiehoping to learn.-- E.

Finding a source for implied volatility figures is probably the question most frequently asked of me. There are many places they can be found. One site that is both free and easy to use (and has been frequently mentioned in prior columns) is

iVolatility.com. Some free features include a list of 10 stocks displaying relatively high implied volatility and 10 with low implied volatility. Use the

basic calculator tool to get the implied volatility on individual names and specific strikes. The free service uses closing prices; if you want real-time prices the live calculator will cost you $5 a month.

Steve:I was wondering about your latest article. Do the volatilities of the current-month options tend to be juiced if earnings are expected within days as compared to the volatility of the later months? This strategy would seem to work well during earnings period if this happens often. Thanks,-- R.G.

As to whether the anticipation of, or surprise following, an earnings release or surprise can "juice" the front-month or near-term options to the point of creating a skew, the short answer is yes. There are many approaches to applying implied volatility in general and skews into your trading strategy, some which were discussed in this prior

article. To learn more about volatility trading, or other option strategies for that matter (and a partial answer to the oft-asked "Read any good books lately?"), I'd suggest

High Performance Options Trading: Options Volatility & Pricing Strategies

by Leonard Yates.

Wednesday's suggestion of applying calendar spreads to

merger candidates generated some great comments, questions and critiquing. The general criticism surrounded the risk involved of a takeover occurring while you're still short the front-month option.

There were two basic issues: First, what would happen if the short calls go in the money before they expire? If the near-term calls are pushed into the money, there is indeed a great likelihood that you will be assigned and have a resulting short stock position. At this point, you can just close out the entire position, buy the stock back to cover and sell out the longer-dated calls you own. The gain in the long calls should offset the loss of the short calls.

But another reader highlighted a potential underlying risk, making a great, if subtle, point:

If you're long longer-dated options against short-term ones and there is a takeover, you have the risk of the vega

the rate of change in an option's theoretical price for one unit change in the implied volatility

crashing toward the volatility of the larger (and usually less volatile)acquiring company. A long time spread that goes to the strike in a takeover would generally be a losing trade because of the collapse of long-term volatility. Thanks for your time, -- L.

Regarding the real risk of a vega crash causing losses, most of the situations I offered had already undergone something of a vetting process, so the longer-dated options were already trading at a relatively low implied volatility -- below the 35% level (which is the current overall environment). As a result, the gap between the spread in implied volatility of the target company's long-term calls and the acquirer's should not be great enough to cause significant losses.

The contraction in implied volatility also would be partially offset by a rise in price in the underlying stock and the commensurate gain in the option's intrinsic value. Still, the reader makes an important point, and it's a good reminder that you should always be aware of the impact that a decline in volatility can have on an option's price.

Steven Smith writes regularly for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks. He also doesn't invest in hedge funds or other private investment partnerships. He was a seatholding member of the Chicago Board of Trade (CBOT) and the Chicago Board Options Exchange (CBOE) from May 1989 to August 1995. During that six-year period, he traded multiple markets for his own personal account and acted as an executing broker for third-party accounts. He invites you to send your feedback to

Steve Smith.

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