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What is a vertical spread?

What is a vertical spread?

A Vertical Spread involves the strategy of buying and selling an equal number of options on the same underlying security with the same expiration date, but different strike prices.

Vertical Spreads can be both bullish and bearish, depending on your view of the underlying security. If you use calls, you are constructing a Vertical Bull Spread, and if you’re using puts, you’re constructing a Vertical Bear Spread.

Vertical spreads have limited risk but also limited returns. You can open a position as a net debit or net credit, but the credit, or the difference between the strikes minus the debit amount, will be your maximum profit for the position.

Keywords: bullish, bearish, options, net debit, maximum profit, maximum loss, options strategies, net credit, vertical spread,