Vertical Spreads: Bull Call and Bear Put Debit Spreads Explained

A vertical spread combines buying one option and selling another of the same type and expiration at a different strike. A debit spread costs money to open and profits from a move in your direction. It is a way to express a directional view with defined risk and a lower cost than buying a single option.

Bull call spread

Buy a call at a lower strike and sell a call at a higher strike.

Example: stock at $97. Buy the $95 call for $7.00, sell the $105 call for $3.00. Net debit: $4.00 ($400).

• Maximum loss: $400, if the stock is at or below $95 at expiration.
• Maximum profit: width − debit = $10 − $4 = $6.00 ($600), at or above $105.
• Break-even: $95 + $4 = $99.

Bear put spread

The mirror image for a bearish view: buy a put at a higher strike and sell a put at a lower strike.

Example: buy the $105 put for $7.00 and sell the $95 put for $3.00. Net debit $4.00.

• Maximum loss: $400 above $105.
• Maximum profit: $600 below $95.
• Break-even: $105 − $4 = $101.

Why use a spread instead of a single option?

• Lower cost. The short option pays for part of the long one.
• Less sensitivity to time decay and volatility. The short leg offsets part of the long leg's theta and vega. See the options greeks.
• Defined risk known at entry, which makes position sizing simple: size by the maximum loss.

The trade-off is a capped profit. If the stock moves far beyond the short strike, a single option would have made more.

Choosing strikes

• Width sets the maximum profit and loss. Wider spreads cost more and can make more.
• Placing the long strike near the money gives a higher probability of some profit; further out of the money is cheaper but needs a bigger move.
• A common rule of thumb is to look for a reward at least equal to the risk, but the right choice depends on the probability of reaching the target.

Credit spreads

Selling the option closer to the money and buying the further one creates a credit spread, which profits if the price stays away from the short strike. See credit spreads.

In TradeThink

Spreads are grouped as one trade with all legs, and the risk profile shows maximum profit, maximum loss, break-even and the payoff today and at expiration.