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A trader would put on a 


 
 when he is focusing on the underlying
directional price movement {up or down). For this trader, the volatility in the market
is of secondary importance, he rather wants to harness the bullish or bearish
movement he foresees happening. If he goes into the position with a bullish
sentiment, he wants his spread to remain bullish i.e. delta positive, regardless of any
change whatsoever in market conditions. Conversely, if bearish, the trader wants his
spread to remain bearish, or delta negative, "come hell or high water," e.g. if
volatility, or interest rates, shift. Eg. Bull Call Spread, Bear Call Spread, Bull Put
Spread, Bear Put Spread, Long Combo

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A 

 
 is a slightly more complicated beast, so please pay attention
and try to follow me. ¦he trader who puts on a volatility spread is chiefly interested
in the degree of volatility of the underlying, and only secondarily in the directional
movement of the underlying { olatility, for our purposes, can be defined as the
measurement of price fluctuation of the underlying, i.e. the "up and down-ness" of
the underlying as it deviates from its average annual price). Now the olatility
Spreader may have a bullish or bearish perspective on the market, but unlike the
Directional Spreader, if he doesn't factor in volatility, the intended direction of the
spread could be reversed.

First, volatility spreads are 


, that is, the total deltas of the long
position equal the total number of deltas of the short position, i.e. long and short
deltas cancel each other out.àecond, volatility spreads are sensitive to a number of
factors, including the price of the underlying, time until expiration, volatility, and
finally, interest rates and a
aa .

Eg. Straddle, Strange, Butterfly, Condor

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The delta of a long butterfly is mildly interesting because the delta is positive when
the stock price is below the middle strike of the butterfly, neutral when the stock
price is at the middle strike, and negative when it is above the middle strike. The
intuition behind this is that the butterfly maximizes its value when the price of the
stock is at the middle strike. Therefore, if the price of the stock is below the middle
strike, it has to rise for the butterfly to make money ± hence the positive deltas. If the
price of the stock is above the middle strike, it has to fall for the butterfly to make
money ± hence the negative deltas.

What's causing the delta to flip from positive to neutra l to negative? Your old friend,
Captain Gamma. The gamma of a long butterfly runs from positive to negative. At the
outer strikes of the butterfly, gamma is positive, indicating that the butterfly would
manufacture positive deltas if the stock price rises, and negative deltas if the stock
price falls.