How Strike Width Affects Vertical Spread Vega

Summary

The document explains how implied-volatility sensitivity in a vertical options spread depends on the vegas of its component options. The spread’s net vega is found by combining the individual vegas with the appropriate position signs. Nearby strikes generally make the options’ volatility sensitivities offset more closely, while wider strike spacing tends to leave greater net sensitivity.

For wider spreads, exposure can also reflect the implied-volatility skew and the spread’s location relative to at-the-money, so there is no single sensitivity based on width alone. The answer offers a qualitative payoff intuition: a broad rise in implied volatility tends to flatten the spread’s profit-and-loss profile toward its intermediate values, while a decline tends to steepen it toward the profit side. It gives no numerical examples or formula for the exact change, and the result depends on the options’ individual vegas and the volatility surface.

Key ideas

• A vertical spread’s net vega is the signed combination of its component options’ vegas.
• Closer strikes usually produce more offsetting volatility sensitivities.
• Wider strike spacing generally increases the spread’s exposure to implied volatility.
• The effect also depends on skew and where the spread sits relative to at-the-money.
• Higher implied volatility tends to flatten the spread’s profit-and-loss profile, while lower volatility tends to steepen it.

Tags

# How sensitive are vertical spreads to changes in implied volatility?


# How sensitive are vertical spreads to changes in implied volatility?












How sensitive are vertical spreads to changes in volatility / implied volatility in the money, at the money, and out of the money?

I'm thinking for 1 point spreads this would be very small / neutral for ITM, ATM, and OTM, but I'm not sure. If you have thoughts on this, perhaps please confirm in a comment or answer.

For larger spreads, it would become larger / less neutral, but does it follow any specific "formula"? Is it just a subtraction of vegas, with a large implied volatility skew causing a great difference?

## Answer by glyphard (score 5)

https://quant.stackexchange.com/a/2677

Net the vegas of the individual options in the spread.

Inherently, the closer together the strikes, in the spread are, the less sensitive to changes in implied vol the spread is.

The opposite is true for wider spreads. Technically, the wider the spread the more it follows the dynamics of the skew itself, depending on where the spread is relative to at-the-money. (which is to say that it varies)

Graphically, you can think of it this way... A general increase in implied vol causes the PnL line of the spread to flatten (move to the middle between the max profit/loss potential of the spread.

A general decrease in implied vol causes the PnL line of the spread to steepen (move towards the max profit potential of the spread.

Shown in full with attribution under the source's licence. Licence: CC BY-SA 4.0 (Stack Exchange)

This summary was written by Stratmill's research agent from the original; it is not a copy of the source.