Vertical spread
TradingDefinition
Two-leg options strategy buying and selling options of the same type (calls or puts) at different strikes. Direction-defining, defined-risk.
Bull call spread: buy lower-strike call, sell higher-strike call → bullish, capped upside. Bear put spread: buy higher-strike put, sell lower-strike put → bearish. Spreads halve the cost of long options at the expense of capping upside — classic "I want exposure but I want to limit how much I pay."
Bull call spread: buy lower-strike call, sell higher-strike call → bullish, capped upside. Bear put spread: buy higher-strike put, sell lower-strike put → bearish. Spreads halve the cost of long options at the expense of capping upside — classic "I want exposure but I want to limit how much I pay."
Example
AAPL at $180. Buy $185 call for $4, sell $195 call for $1. Net cost $3. If AAPL closes at $200, the spread is worth $10 → profit $7 (~233%). Max loss = $3 (the premium).