Vertical Spreads

A vertical spread buys one option and sells another with the same expiration but a different strike. Here is how debit and credit spreads work, why they cap both risk and reward and how to calculate their limits.

Buy one, sell one

A vertical spread combines two options of the same type and expiration at different strikes. Selling the second option lowers the cost of the first but caps the potential gain. The result is a trade with a known maximum profit and maximum loss.

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