Strategies
Vertical Spread
Also called: call spread, put spread, debit spread, credit spread
A vertical spread buys one option and sells another of the same type and expiration at a different strike. It caps both maximum gain and maximum loss at the difference between strikes, and it can be built for a debit (directional) or a credit (income).
A bull call spread (buy the lower call, sell the higher call) and a bull put spread (sell the higher put, buy the lower put) both profit from a rise; the call version is paid for upfront and the put version collects premium. Bear spreads mirror them. Selling the second leg reduces cost, theta, vega exposure and IV risk.
Maximum profit on a debit spread is the strike width minus the debit; on a credit spread it is the credit received, with maximum loss equal to width minus credit. Because risk is defined at entry, verticals are the standard way to trade direction with premium-selling economics.
Formula
Credit spread: max loss = width − credit · Debit spread: max profit = width − debit
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Frequently asked questions
Debit spread or credit spread?
Their payoffs at the same strikes are near-identical by put-call parity. Choose on pricing, assignment considerations, and whether you prefer to pay or receive premium upfront.