Debit spread

A spread you open for a net debit — you pay premium up front and profit if the stock moves your way.

A debit spread is an options position where you buy one option and sell another of the same type (both calls or both puts) with the same expiration, and the option you buy costs more than the one you sell. You pay a net premium up front, which is your debit and also your maximum loss. Traders use it when they have a clear directional view but want to cut the cost of a plain long option and cap the impact of theta and volatility.

A simple example: you think a stock at 100 will drift up to 110 over a few weeks. Instead of buying the 100 call outright, you buy the 100 call and sell the 110 call. The short call reduces what you pay, so your break-even is lower and your loss is smaller if you are wrong, but your profit is capped once the stock passes 110.

The common mistake is treating a debit spread as unlimited upside. It is not. You are trading away the big tail move for a cheaper, more forgiving position. Pick the short strike near where you realistically expect the stock to land, otherwise you cap your gains for very little premium in return.

← Back to the glossary · Guides · Strategies

All options terms

Call Put Strike price Premium Expiration In the money (ITM)At the money (ATM)Out of the money (OTM)Intrinsic value Time value (extrinsic)Delta Gamma Theta Vega Implied volatility (IV)Open interest Assignment Exercise Spread Break-even Probability of profit (POP)Assignment risk / early assignment LEAPS Naked (uncovered) option Rho Historical volatility (HV)Volume Bid-ask spread Moneyness Covered call Cash-secured put Vertical spread Iron condor Straddle Strangle Rolling Margin Max pain American-style option European-style option Contract multiplier Debit vs credit Volatility skew The Greeks Underlying Hedge Leverage Expected move Notional value Protective put Collar Butterfly spread Iron butterfly Calendar spread Diagonal spread Credit spread Bull call spread Bear put spread Ratio spread Synthetic position The wheel strategy Poor man’s covered call (PMCC)Box spread Put-call parity Pin risk IV crush IV rank / IV percentile Ex-dividend date Deep in the money Weeklys 0DTE (zero days to expiration)Order types (to open / to close)Buying power reduction Cash settlement Market maker Slippage Mid price Black-Scholes model

Educational use only. Quotes are delayed ~15 minutes and nothing here is financial advice. Options trading involves substantial risk of loss.