During the life of a vertical call spread, the spread will trade
between its minimum and maximum values (between 0 and the
difference between the two strikes). In the case of a vertical
call spread, the spread will trade closer to zero when the stock
trades closer to or lower than the lower strike price. The
spread will trade closer to maximum value when the stock trades
closer to or higher than the higher strike price.

For example, lets refer back to the August 35 40 call spread
chart on a previous page. In the column marked August 35 40
call spread closing price, you can see that with the stock at
$35.00, the spread is worthless. As the stock price climbs
toward 40, the call closing price increases until finally it
reach its maximum. Remember, this maximum gain occurs at
expiration. Before that time, the spread will trade with a
premium.

Starting from a stock price of 37 , a price located directly
between the two strikes, (using our example of the August 35
40 call spread) we can see the approximate value of the spread
is roughly $2 dollars. This is because the August 35 calls and
the August 40 calls are equidistant from the current stock price
of $37.50. Being equidistant from the stock, both the August 35
and 40 calls will have almost the same amount of extrinsic value
in them. Thus, in the spread, the extrinsic values of the two
options cancel themselves out since you are long one call and
short the other. This would leave each option value consisting
of only intrinsic value. With the stock at $37.50 the value of
the August 35 40 call spread will be $2.50. The August 35
calls will have $2.50 in intrinsic value while the August 40
calls will have $0 in intrinsic value. The difference gives you
a spread with a value of $2.50.

A general rule of thumb is: if the stock price is located evenly
between the two strike prices, the vertical spread should be
worth roughly half of the value of the distance between the two
strikes. This will be true for vertical put spreads as well as
call spreads. From this rule, we can roughly estimate the
vertical spreads price per different stock prices.

For vertical call spreads, if the spread is worth roughly half
of the difference between the two strikes with the stock price
directly between the two strikes, then as the stock falls to
lower strike and beyond, the spreads value will decrease and
move closer to $0. Time left until expiration and volatility
will dictate how close and how quickly it will approach $0. On
the other side, as the stock climbs toward and above the upper
strike, the spreads value will increase toward its maximum value
described by the difference between the two strikes.

For vertical put spreads, as the stock price decreases toward
the lower strike price, the spread will increase in value and
approach its maximum value as defined by the difference between
the two strikes. As the stock price increases toward the higher
strike, the spread will decrease in value and will approach $0.
Again, time until expiration and volatility will determine how
quickly and how close the spread will approach $0.