In looking at vertical spreads, an investor must take note of
the fact that vertical spreads have an intrinsic value. This
means that a vertical spread can be considered to be
in-the-money. If a vertical spread has an intrinsic value then
it can also have an extrinsic value. The maximum extrinsic value
in a spread will deviate from spread to spread based on several
factors. However, the maximum intrinsic value will equal the
exact difference between the strikes at expiration as stated
earlier.

During a vertical spreads life, its price will
fluctuate between 0 and the value of the difference between the
two strikes. The price of the spread, at any given time can be
determined by the location of the stock and the time until
expiration. At expiration, of course, all that will be left in
terms of value for the two options will be the intrinsic value
of each. Thus, the value of the spread will be the difference
between each options intrinsic value at expiration.

Because vertical spreads have an intrinsic value, the term
moneyness can be applied to them. Moneyness refers to whether
or not and by how much an option, or a vertical spread, may be
in-the-money or out-of-the-money. This is a term used mostly by
floor traders, but is worth noting here.