Mark Sebastian wrote the following in his OptionPit.com blog on 12/06/2010:
Some people call a calendar a good way to hedge the short vega from income spreads. This might be true in some cases but not in all cases. It is better to understand the movements of implied volatility across options. One should understand how volatility spikes affect volatility. The chart below is a graph of 30-day implied volatility (higher line) compared to 90-day implied volatility (lower line). What do you notice?
(Source: Livevol © www.livevol.com)
Notice how the 30-day ...