Vertical spreads explained: the 4 types and their max loss
A vertical spread is two options on the same stock and expiry, at two strikes. It caps how much you can lose, and how much you can make. Here are all 4 types, with the math.
The idea in one line
You buy one option and sell another of the same type (both calls or both puts), same stock, same expiry, different strikes.
That's a Vertical spread. "Vertical" because the strikes sit above each other on the options chain.
Why bother? A single sold option can carry a very large loss. A single bought option can lose its whole premium to time decay. A spread puts a ceiling on the loss and a ceiling on the gain, both known before you enter.
The 4 types at a glance
| Spread | Built from | You pay or collect? | Wins if the stock… |
|---|---|---|---|
| Bull call spread | Buy lower call, sell higher call | Pay (a debit) | Rises |
| Bear put spread | Buy higher put, sell lower put | Pay (a debit) | Falls |
| Bull put spread | Sell higher put, buy lower put | Collect (a credit) | Stays up or rises |
| Bear call spread | Sell lower call, buy higher call | Collect (a credit) | Stays down or falls |
Debit spreads cost money up front. Credit spreads collect a premium up front. Both have a fixed worst case.
The 2 formulas that matter
The width is the gap between the strikes. A $100/$105 spread is $5 wide.
Debit spread: max loss = the debit paid. Max gain = width − debit.
Credit spread: max gain = the credit collected. Max loss = width − credit.
Multiply by 100 for one contract. Now let's check them with numbers.
Example 1: a bull call spread (debit)
A made-up stock, XYZ, trades at $100. 30 days out (illustrative prices):
- Buy the $100 call for $3.10
- Sell the $105 call for $1.20
- Net debit: $1.90 ($190 per spread)
| XYZ at expiry | $100 call worth | $105 call worth | Spread worth | Result |
|---|---|---|---|---|
| $95 | $0 | $0 | $0 | −$190 |
| $100 | $0 | $0 | $0 | −$190 |
| $101.90 | $1.90 | $0 | $1.90 | $0 (break-even) |
| $105 | $5.00 | $0 | $5.00 | +$310 |
| $115 | $15.00 | −$10.00 | $5.00 | +$310 (capped) |
Max loss: $190. Max gain: $310. Compare with buying the $100 call alone for $310: that risks $310 and needs XYZ at $103.10 to break even. The spread is cheaper and breaks even sooner, but stops gaining at $105. That's a math example, not a promise.
Example 2: a bull put spread (credit)
Same stock at $100. 30 days out (illustrative prices):
- Sell the $95 put for $1.40
- Buy the $90 put for $0.50
- Net credit: $0.90 ($90 collected per spread)
| XYZ at expiry | $95 put | $90 put | Spread value owed | Result |
|---|---|---|---|---|
| $100 | $0 | $0 | $0 | +$90 (capped) |
| $95 | $0 | $0 | $0 | +$90 |
| $94.10 | −$0.90 | $0 | −$0.90 | $0 (break-even) |
| $90 | −$5.00 | $0 | −$5.00 | −$410 |
| $80 | −$15.00 | +$10.00 | −$5.00 | −$410 (max loss) |
Max gain: $90. Max loss: $410. The credit spread wins more often in a flat or rising market, but its worst case is over 4 times its best case. That's a math example, not a promise.
In plain words: debit spreads usually risk less to make more, but need a move. Credit spreads usually make less to risk more, but can win if nothing much happens. Neither is free.
The bear versions
The bear put spread and bear call spread are the mirror images.
- Bear put spread: buy the $100 put, sell the $95 put. Pay a debit. Max loss = debit. Max gain = $5 − debit.
- Bear call spread: sell the $105 call, buy the $110 call. Collect a credit. Max gain = credit. Max loss = $5 − credit.
Same formulas, flipped direction.
How the Greeks change
A spread softens every Greek, because the sold option offsets the bought one.
- Delta is smaller than a single option's, so the spread moves less per $1 in the stock.
- Theta is smaller. Debit spreads lose less to decay; credit spreads collect less from it.
- Vega is smaller, so a drop in Implied volatility hurts less. That's why some traders prefer spreads around earnings. See IV crush explained.
Our options Greeks guide explains each one.
Choosing the width
| Width | Debit paid or credit collected | Max loss | Max gain |
|---|---|---|---|
| Narrow ($2.50) | Smaller | Smaller | Smaller |
| Wide ($10) | Bigger | Bigger | Bigger |
Wider isn't better or worse. It's just bigger. Choose the width so that the max loss fits your risk rule. If your rule is 1% of a $20,000 account, that's $200. A spread with a $410 max loss is twice too big. See how much to risk per trade.
Assignment risk on spreads
The option you sold can be assigned, especially if it's in the money near expiry or before a dividend. Your bought option still protects you, but you may need to act on it.
The trickiest case is expiry day with the stock sitting between your two strikes. Our options assignment guide covers that "pin risk" and what to do.
Many traders close spreads before expiry day to avoid it.
Common mistakes
- Sizing by the premium, not the max loss. A $90 credit can hide a $410 risk.
- Picking credit spreads only because they "win more often." Winning often with small gains and losing rarely with big losses can still add up to a loss.
- Holding into expiry with the stock between the strikes. That's where surprises happen.
- Forgetting the bid-ask cost twice. Two options means two spreads to cross, in and out.
Try it today (no money needed)
- Pick a large stock. Open its chain about 30 days out.
- Build a bull call spread $5 wide near the current price. Use the ask for the bought call and the bid for the sold call.
- Work out the max loss, max gain and break-even with the formulas above.
- Check them in the options profit calculator.
- Track it on paper to expiry. Write down the result in dollars and as a share of the max loss.
Questions
What is a vertical spread in options?
Buying one option and selling another of the same type on the same stock and expiry, at different strikes. It caps both the possible loss and the possible gain.
What is the max loss on a credit spread?
The width between the strikes minus the credit collected, times 100. A $5-wide spread sold for $0.90 has a max loss of $410.
Are debit spreads or credit spreads better?
Neither. Debit spreads cost money and need a move, but often risk less than they can make. Credit spreads collect a premium and can win in a flat market, but often risk more than they can make.
Can a vertical spread be assigned early?
Yes. The sold leg can be assigned before expiry, especially if it's deep in the money or a dividend is coming. Your bought leg still caps the loss, but you may need to act.
Why use a spread instead of a single option?
A spread lowers the cost, reduces the effect of time decay and volatility changes, and puts a known ceiling on the loss. In exchange, it limits the gain.
Want the next step? We'll walk you through it.
Four free lessons by email, one every few days — each with a 10-minute exercise on a real chart.
Send Me the Free Lessons 4 short emails · No spam · Unsubscribe anytimeOr see the whole method, step by step:
See What’s Inside the Course Try everything free first. Decide when you're ready. · Open the free chart tool (works in the TradingView phone app)One chart idea a day, in plain English. Follow along: