Veritcal Debit Spreads

[spindr0]

Quote from C.J.:

Generally credit spreads will benefit from a drop in implied volatility (making them cheaper to buy back). The opposite is true of debit spreads which are negatively impaired by an increase in implied volatility.

Some spreads are more apt to be affected by the above than others and there are many factors that come into play such as the difference between the strikes on the spread and how far in or out of the money the spread may be but irrespective of that, It is not correct to assume the spreads have identical characteristics even if the risk reward profile is identical.]

All of this is all true about spreads. IV change affects ITM and OTM spreads differently.

But IV change has very little effect on equivalent spreads. Since one is for a credit and the other is for a debit, what one gains, the other one loses, so give or take a few cents, both positions have the same result.

 

[4444CJones4444]

Quote from dmo:

This is a misunderstanding. Whether or not a spread benefits from a drop in implied volatility depends on where the underlying is at the time. If the underlying is closer to the strike you are long, you are overall long vega. If the underlying is closer to the strike you are short, you are overall short vega.

I guess it comes down to terminology. When I think of a bull put spread or a bull call spread, I immediately picture a graph with the price of the underlying higher than the short strike. Obviously, if the price moves against you (lower than the short strike), the positive theta and negative vega will reverse.

I've always assumed opening the spread with the underlying lower than the short strike, and therefore with negative theta from the start, had another name like "the ultra bull put spread" or "extra strength call bull spread."