Vertical spreads
Cap the cost and the risk by trading two strikes at once.
A vertical spread combines two options of the same type and expiry at different strikes. You buy one and sell another, which lowers your cost and defines both your maximum loss and maximum gain. A bull call spread profits if the stock rises; a bear put spread profits if it falls.
Bull call spread
Buy a call, sell a higher-strike call. Cheaper than a bare call because the sold call funds part of it. Your profit is capped at the higher strike — the trade-off for the lower cost. Use it when you are bullish but want to reduce premium and theta.
Bear put spread
Buy a put, sell a lower-strike put. The bearish mirror image: defined risk, defined reward, cheaper than a naked put.
| Bull call spread | Bear put spread | |
|---|---|---|
| View | moderately bullish | moderately bearish |
| Max loss | net premium paid | net premium paid |
| Max gain | strike width − premium | strike width − premium |
Why spreads beat naked options in chop
By selling a strike you offset vega and theta — a spread bleeds far less to time decay and IV crush than a single long option. In sideways or high-IV conditions that offset is the edge.