When we want to place a directional trade, one strategy to use is the vertical spread. There are several types including credit spreads and debit spreads, how do we decide which one to use and what are the mechanics?
To decide between credit spreads and debit spreads, we reference Implied Volatility Rank. When Implied Volatility Rank is low we use debit spreads. When Implied Volatility Rank is high we use credit spreads. Although their risk profiles are very similar, their mechanics are different. Tune in as Tom and Tony discuss how to structure vertical spreads.