Options Blueprint
Vertical spreads
Bull call, bear put and credit spreads: defined risk on both sides.
All four vertical spreads use two options of the same type and expiration, with different strikes. The key idea is defined risk on both sides: you know the most you can make and lose before you start. Spreads usually need a higher broker approval level and often a margin account.
Debit spreads (you pay up front)
Bull call spread: moderately bullish
Setup: Buy the XYZ $50 call ($2.50) and sell the $55 call ($1.00). Net debit = $1.50 ($150). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | $55 − $50 − $1.50 = $3.50 (XYZ at or above $55) | +$350 |
| Max loss | $1.50 (XYZ at or below $50) | −$150 |
| Breakeven | $50 + $1.50 = $51.50 |
Bear put spread: moderately bearish
Setup: Buy the XYZ $50 put ($2.50) and sell the $45 put ($1.00). Net debit = $1.50 ($150). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | $50 − $45 − $1.50 = $3.50 (XYZ at or below $45) | +$350 |
| Max loss | $1.50 (XYZ at or above $50) | −$150 |
| Breakeven | $50 − $1.50 = $48.50 |
Credit spreads (you are paid up front)
Bull put spread: income with a neutral-to-bullish view
Setup: Sell the XYZ $45 put ($1.00) and buy the $40 put ($0.30). Net credit = $0.70 ($70). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | $0.70 (XYZ at or above $45) | +$70 |
| Max loss | $45 − $40 − $0.70 = $4.30 (XYZ at or below $40) | −$430 |
| Breakeven | $45 − $0.70 = $44.30 |
Bear call spread: income with a neutral-to-bearish view
Setup: Sell the XYZ $55 call ($1.00) and buy the $60 call ($0.30). Net credit = $0.70 ($70). Results are shown at expiration, per 100-share contract, ignoring fees, dividends and taxes.
| At expiration | Per share | Per contract (×100) |
|---|---|---|
| Max gain | $0.70 (XYZ at or below $55) | +$70 |
| Max loss | $60 − $55 − $0.70 = $4.30 (XYZ at or above $60) | −$430 |
| Breakeven | $55 + $0.70 = $55.70 |
Win rate is not the same as a good strategy
Credit spreads often “win” more often but lose more when they lose: here you risk $430 to make $70. Debit spreads are the reverse: risk $150 to make $350, but they need the stock to move.
Debit spread (bull call)
Credit spread (bull put)
Key risks (all verticals)
- Early assignment of the short leg, which can leave you briefly holding stock (or short stock), for example over a weekend.
- Pin risk: the stock closes right at the short strike at expiration, and you don’t know whether you’ll be assigned.
- Gap risk: a jump past both strikes takes you straight to the maximum loss.
- Time decay hurts debit spreads and helps credit spreads.
- Commissions and bid/ask spreads on two legs.
What can go wrong: the rare big loss
You sell the bull put spread for $70 several months in a row and it works each time. Then XYZ gaps down to $38 on news. Both puts are in the money and the spread hits its maximum loss of −$430, wiping out about six months of $70 wins ($420) in one trade.
Who tends to use them
Learners who understand calls and puts and want to cap risk on a directional view, or to turn a cash-secured put into a smaller, defined-risk version.
Related glossary terms
Related Options Blueprint topics
- Vertical Spreads, Part 1: Debit Spreads (Bull Call & Bear Put)
- Vertical Spreads, Part 2: Credit Spreads
We’ll cover these topics in the future. See all Options Blueprint topics.
Important: please read
Educational only. Options Blueprint is general financial education. It is not financial, investment, tax or legal advice, and it is not a recommendation to buy or sell any security or to use any strategy. Nothing here is personalized to you, and viewing it doesn’t create an advisory relationship.
Options are not suitable for everyone. Options are complex and carry significant risk. They can lose money quickly, including the full amount you paid. Some strategies can lose more than the premium received or paid, and some (such as selling uncovered calls) have unlimited potential losses. Assignment can happen at any time before expiration on most stock and ETF options, and prices can gap sharply on news.
Hypothetical examples only. “Stock XYZ” and all prices, premiums and results on this page are made up for illustration. They ignore commissions, fees, bid/ask spreads, dividends, interest, margin requirements and taxes, all of which affect real results. No real tickers are used, and nothing here is a trade recommendation.
Read the official disclosure first. Before buying or selling an option, investors must receive and read the Options Clearing Corporation’s Characteristics and Risks of Standardized Options (the “Options Disclosure Document”), available from your broker or directly from the OCC.
Read the Options Disclosure Document (OCC)
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