Vertical Spreads — Defined-Risk Directional Trades

Overview

Vertical spreads combine a long and short option at different strikes but the same expiration. They define your max risk and max reward upfront — the foundation of professional options trading. Model every spread with the risk/reward calculator before entering a position. Explore more advanced variations like iron condors once you are comfortable with single-leg spreads, and review our strategies library for additional setups.

Key Takeaways

• Bull call spread: buy lower strike call + sell higher strike call. Profits if stock goes up.
• Bear put spread: buy higher strike put + sell lower strike put. Profits if stock goes down.
• Max risk = debit paid. Max reward = width of strikes − debit paid.
• Credit spreads (bull put, bear call) collect premium upfront — profit if the stock stays away from your sold strike.

Practical Tips

• Use spreads instead of naked options to reduce cost and define risk.
• Target 1:2 or better risk/reward ratio when buying debit spreads.
• Close winners at 50-75% of max profit and losers at 100-200% of credit received.