Trading Strategies
What is Vertical Spread?
Buying and selling options at different strikes with the same expiration.
📖 Complete Definition
A vertical spread (or simply "spread") involves buying and selling options of the same type (calls or puts) with the same expiration but different strikes. Debit spreads (bull call, bear put) pay premium for directional exposure with capped risk. Credit spreads (bull put, bear call) collect premium in exchange for limited profit potential.
💡 Examples
- →Bull call spread: Buy $100 call, sell $105 call = pay $2 for $5 max profit
- →Bull put spread: Sell $100 put, buy $95 put = collect $1.50 for $5 max risk
❓ Frequently Asked Questions
Debit spread vs credit spread - when to use each?
Use debit spreads when IV is low and you have a directional view. Use credit spreads when IV is high to collect premium while defining risk.
Put Your Knowledge to Practice
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