Vertical spreads
Two strikes, one expiry, capped both ways
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Two options, same expiry, different strikes. Bolt them together and you get the single building block behind almost every strategy on the mountain.
Until now you’ve traded one option at a time — one bet, one ticket. A vertical spread changes the game: you buy one option and sell another, both the same type and the same expiry, just at different strikes. Two legs, working as a team.
Why “vertical”? Picture the option chain. Same expiry date means the same column; different strikes means different rows stacked one above the other. Your two legs sit vertically on the page — and that little gap between them is where the whole strategy lives.
Both legs are calls, or both are puts — never mixed. Both share an expiry date. The only thing that differs is the strike price. Break any of those rules and it stops being a vertical.
Why sell a leg at all?
Buying an option on its own can be expensive, and time decay nibbles at it every single day. So here’s the clever bit: when you also sell a strike further away, the cash you collect pays down part of what you spent. Your ticket gets cheaper.
There’s a trade-off, of course — there always is. That sold leg puts a ceiling on how much you can win. You’re handing back the moonshot in exchange for a cheaper, calmer ride. For most traders, most of the time, that’s a bargain worth taking.
The short leg is a coupon that makes your ticket cheaper — and the price of that coupon is your upside.
The bull call spread: cheaper bullishness
Let’s build the classic. A stock trades at $100 and you think it drifts up toward $110. Instead of buying the $100 call outright, you buy the $100 call and sell the $110 call. The premium from that sold call trims your cost right away.
Above $110 your gains stop climbing — but you never planned to ride past $110 anyway, so who cares? You’re renting a specific slice of upside, not the whole sky.
Max profit = the gap between your strikes minus what you paid. Buy the $50 call, sell the $55 call, pay $2 net → your best case is $5 − $2 = $3 per share, reached at or above $55. Simple, capped, knowable before you enter.
You pay to open — that’s your whole risk
Because the long leg costs more than the short leg brings in, you pay a net debit to open. That’s why this flavour is called a debit spread. And here’s the beautiful part: that net cost is not just your entry price — it’s also the absolute most you can lose.
Both legs share the same expiry, so nothing can slip through the cracks. If the stock collapses, both calls expire worthless and you’re out exactly what you paid — not a penny more.
A vertical caps your loss and your gain. That’s a feature, not a bug — but don’t open one expecting a runaway winner. If the stock rockets past your short strike, you’ve already collected your maximum. No regrets allowed.
One long leg, one short leg, capped on both ends. That shape is the seed of nearly everything else up here — credit spreads, condors, butterflies, all of it. Next, we flip the whole thing around and get paid to open the trade. 🏔️