Vertical Spread

A vertical spread (also called a money spread or price spread) involves simultaneously buying and selling options of the same type (both calls or both puts) with the same expiration date but different strike prices. There are four main varieties: bull call spread (buy lower strike call, sell higher strike call), bear put spread (buy higher strike put, sell lower strike put), bull put spread (sell higher strike put, buy lower strike put), and bear call spread (sell lower strike call, buy higher strike call). Debit spreads (bull call, bear put) require a net premium payment and profit from directional moves. Credit spreads (bull put, bear call) collect net premium and profit from time decay or the underlying staying on one side of the strikes. Vertical spreads offer defined risk and defined reward, making them popular among traders who want directional exposure with limited capital and known maximum loss. The trade-off is that profit is also capped at the width of the strikes minus the net premium.