A long call gains when implied volatility rises. A vertical is a long option and a short option, so the two legs pull against each other. Whether the spread cares about volatility at all depends on where the stock sits between the strikes.
Centered at the money, near vega-neutral
Vega is how much an option's price changes when implied volatility moves one point. It is largest at the money and falls away on both sides. Two neighboring strikes either side of the stock price have almost the same vega. Buy one and sell the other and they nearly cancel: a one-point rise in IV lifts the long leg by about as much as it lifts the short leg. A vertical centered on the stock price is close to vega-neutral. It is mostly a bet on direction, and that is its appeal.
Then the stock moves
Say you own a $100/$105 bull call spread and the stock rallies to $105. The $105 call is now the at-the-money option, with the biggest vega on the board, and you are short it. The $100 call is in the money with less vega, and you are long it. The spread has become short volatility: a rise in IV now costs you money, even though the stock did exactly what you wanted.
The rule: a vertical is long vol when the stock is nearer the long strike, short vol when it is nearer the short strike. The same spread flips sign as the stock moves through it.
Net vega of the spread against the stock price. It is positive near the $100 strike and negative near the $105 strike, crossing zero between them. Switch to gamma and theta to see the same flip, and to delta to see the hump in between.
Numbers make it concrete. With 30 days left and 30% volatility, the $100/$105 call spread with the stock at $100 is worth about $1.93, and one more vol point adds about a cent. With the stock at $105 it is worth about $3.03, and one more vol point takes away about 2 cents. Small per share, but the sign has turned.
Why more IV can hurt a winning debit spread
A spread's price is a probability-weighted average of what it will be worth at expiration, somewhere between zero and the width. Raise IV and the market has to allow for bigger moves both ways, which pulls the price toward the middle of that range. A spread worth more than half its width falls; one worth less rises. If you are already winning, rising IV works against you. If you are losing, it is on your side.
The $100/$105 call spread at 15%, 30% and 60% volatility. Below the strikes, higher vol lifts the value; above them, it drags a winning spread down from $5. Pull days down and the lines separate less, because short-dated spreads have little vega left.
The lines cross near the middle of the strikes, where the spread is worth about half its width. That crossing is the vega flip, drawn as prices.
Skew: two legs, two volatilities
On most stocks, and on the big index products, options below the market carry a higher implied volatility than options above it. That tilt across strikes is called skew. Traders measure it as the IV of the 25-delta put minus the IV of the 25-delta call. A positive number means the downside is the expensive side.
A vertical has two strikes, so its legs are priced off two different IVs, and the lower strike carries the higher one. A bull call spread buys the lower strike and sells the higher, so it buys the richer IV and sells the cheaper one: it costs more than one flat vol would say. The bull put spread on the same strikes also buys the lower strike, the expensive one, and sells the cheaper higher one, so its credit is smaller than flat vol would say. Parity still holds, so whatever skew adds to the call spread it takes off the put spread.
With 30 days left, a 30% at-the-money vol and a 4% rate, the $100/$105 call spread is worth about $1.93 at one flat vol and the matching put spread about $3.05. Tilt the smile by 4 vol points for every 10% of strike and the call spread rises to about $2.12 while the put spread falls to about $2.87. Both pairs still add to $4.98.
Put values by strike off a skewed smile (solid) and off one flat 30% volatility (dashed). The gap widens as the strike falls, so the lower leg of any vertical is the one skew marks up. Switch to calls and push skew up to see the upside strikes marked down.
So why do credit traders lean on the put side? Not because a put spread at a given pair of strikes is richer; under downside skew it is the cheaper of the two. It is because a single out-of-the-money put is priced on a much higher IV than the call the same distance above, so the premium is on the put side, and because on an index that higher IV pushes the 25-delta put strike further from the market. Selling by delta, as the next lesson does, lets the skew move your strike rather than your price.
The maths: a vertical is a probability times the width
For call strikes K1 < K2 a width W apart, the spread today is worth about V ≈ W·e^(-rT)·N(d2), with d2 taken at the midpoint strike. N(d2) is the model's chance the stock finishes above that strike, and e^(-rT) discounts the width back to today. A very narrow vertical is a bet that pays the width if the stock finishes above the strike and nothing otherwise, called a digital option.
Here d2 = [ln(S/K) + (r - v²/2)·T] / (v·√T), with S the stock price, K the midpoint strike, v the implied volatility and T the years left. Worked example: S = $100, strikes $100 and $105 so K = 102.5, v = 30%, 30 days (T = 0.0822), r = 4%. ln(100/102.5) = -0.0247 and (0.04 - 0.045) × 0.0822 = -0.0004, so the top is -0.0251. v·√T = 0.30 × 0.2867 = 0.0860. d2 = -0.0251 / 0.0860 = -0.29 and N(-0.29) = 0.385. V ≈ 5 × 0.9967 × 0.385 = $1.92. Pricing both legs in full gives $1.93.
Because v sits in the denominator, raising it drags N(d2) toward one half. A spread worth more than about half its width loses value when IV rises and one worth less gains. That is the vega flip, in one line. Skew adds one more term: with IV that changes by strike, V ≈ W·[e^(-rT)·N(d2) - vega·dv/dK], where vega is the call's price change per unit of volatility and dv/dK is how fast IV changes per dollar of strike. Downside skew makes dv/dK negative, so the call spread gets richer and, by parity, the put spread on the same strikes gets cheaper.
Your turn
Read vega and IV off the SPY and META chains. You are looking for how little vega changes between neighboring strikes, how much IV differs between an in-the-money and an out-of-the-money call, and how big the 25-delta skew is on an index.