### What is a Vertical Spread

A vertical spread options strategy involves the purchase of the same type of put or call option on the same underlying asset, with the same expiration date but with different strike prices. The term "vertical" comes from the position of the strike prices. In contrasts to a calendar spread, which is the simultaneous purchase and sale of the same option type with the same strike but different expiration dates.

### BREAKING DOWN Vertical Spread

Traders will use a vertical spread when they expect a moderate move in the price of the underlying asset. Because the strategy involves the sale, or writing, of an option as a short position, the proceeds will partially or fully offset the purchase price of the long option. The result is a lower cost, lower risk trade. However, in return for the lower risk, the trading strategy will cap the profit potential. When the investor expects a significant move in the price of the underlying asset, a vertical spread is not an appropriate tool.

There are several varieties of vertical spreads. Bullish traders will use bull call spreads, also known as long call vertical spreads, and bull put spreads. For both strategies, the trader buys the option with the lower strike price and sells the options with the higher strike price. Aside from the difference in the option types, the main variation is in the timing of the cash flows. The call spread results in a net debit at the outset, while the put spread results in a net credit at the origin.

Bearish traders may use bear call spreads or bear put spreads, also known as a bear put debit spread. For these strategies, the trader sells the option with the lower strike price and buys the option with the higher strike price.

### Calculating Vertical Spread Profit and Loss

All examples do not include commissions.

**Bull call spread**:

- Max profit = the spread between the strike prices minus the initial debit
- Max loss = the net premium paid (debit)

**Bear call spread**:

- Max profit = keeping the net premium received (credit)
- Max loss = the spread between the strike prices minus the initial credit

**Bull put spread**:

- Max profit = keeping the net premium received (credit)
- Max loss = the spread between the strike prices minus the initial credit

**Bear put spread**:

- Max profit = the spread between the strike prices minus the initial debit
- Max loss = the net premium paid (debit)