Vertical spread
A vertical spread is two options on the same stock and expiry. You buy one strike and sell another, which caps both the loss and the gain.
In depth
The option you sell pays for part of the one you buy. That cuts the cost and the risk, and it puts a ceiling on the profit. A debit spread costs money to open and pays if price moves your way. A credit spread pays you up front and keeps the money if price stays away.
Stock at 100. Buy the 100 call, sell the 105 call, and it costs 2.00. The most you can lose is that 2.00. The most you can make is the 5 dollar gap less the 2.00, so 3.00. Anything above 105 is not yours.
Why it matters
A spread swaps upside for a smaller loss and slower decay. The option you sold decays in your favour. The catch is the exit. Two legs mean two spreads to cross. Getting out in a fast market costs more than you expect it to.
Both legs import from Schwab and IBKR on their own, so the record stays complete. Tag your spread trades and the By tag table puts them next to your plain calls and puts. The calendar shows what each day made or lost.
Frequently asked questions
The loss is smaller and capped. The gain is capped too, and two legs cost more to exit.
A debit spread costs money to open and needs a move. A credit spread pays you and needs price to stay away.
Keep your Vertical spread trades on the record in TraderLog
Trades import from Schwab and IBKR on their own, every day lands on a calendar with its P&L, and the day's entry sits beside it. Replay any trade on a TradingView chart. Free for 14 days, no card.
Every trading morning at 8:40 ET our model draws the SPY, QQQ and IWM zones it expects to matter, on a TradingView chart, before the open. Where price reaches one, it has turned 74 percent of the time. Free, no account. See today's map