Vertical spread

Buying and selling two options of the same type and expiration but different strikes — a defined-risk directional bet.

A vertical spread means you buy one option and sell another of the same type (both calls or both puts) with the same expiration but different strikes. The word vertical comes from the option chain: you move up or down the strikes while staying in the same expiration column. Selling the second leg pays for part of the one you buy, so the trade costs less and caps both your risk and your reward.

In practice you use a vertical spread when you have a directional view but want defined risk. Say a stock trades at 100 and you're mildly bullish. You buy the 100 call and sell the 105 call for a net debit of, for example, 2.00. Your maximum loss is that 2.00; your maximum gain is the 5-point width minus the debit, so 3.00, reached if the stock closes above 105 at expiration.

The most common mistake is treating the short strike as a target you'll blow through. If you expect a large move, the capped upside works against you and a single long call might fit better. Vertical spreads shine when you want a clear risk-reward and are comfortable giving up the tail in exchange for a cheaper, more forgiving position.

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