what is a vertical spread 
a vertical spread involves the simultaneous buying and selling of options of the same type i e either puts or calls and expiry but at different strike prices the term vertical comes from the position of the strike prices this is in contrast to a horizontal or calendar spread which is the simultaneous purchase and sale of the same option type with the same strike price but with different expiration dates shapecharge getty imagesunderstanding vertical spreadstraders will use a vertical spread when they expect a moderate move in the price of the underlying asset vertical spreads are mainly directional plays and can be tailored to reflect the trader s view bearish or bullish on the underlying asset depending on the type of vertical spread deployed the trader s account can either be credited or debited since a vertical spread involves both a purchase and a sale the proceeds from writing an option will partially or even fully offset the premium required to purchase the other leg of this strategy namely buying the option the result is often a lower cost lower risk trade than a naked options position however in return for lower risk a vertical spread strategy will cap the profit potential as well if an investor expects a substantial trend like move in the price of the underlying asset then a vertical spread is not an appropriate strategy types of vertical spreadsthere are several varieties of vertical spreads bullish traders will use bull call spreads and bull put spreads for both strategies the trader buys the option with the lower strike price and sells the options with the higher strike price aside from the difference in the option types the main variation is in the timing of the cash flows the bull call spread results in a net debit while the bull put spread results in a net credit at the outset bearish traders utilize bear call spreads or bear put spreads for these strategies the trader sells the option with the lower strike price and buys the option with the higher strike price here the bear put spread results in a net debit while the bear call spread results in a net credit to the trader s account image by sabrina jiang investopedia 2020calculating vertical spread profit and lossall examples do not include commissions bull call spread premiums result in a net debit bear call spread premiums result in a net credit bull put spread premiums result in a net credit bear put spread premiums result in a net debit real world example of a bull vertical spreadan investor looking to bet on a stock moving higher may embark on a bull vertical call spread the investor buys an option on company abc whose stock is trading at 50 per share the investor buys an in the money itm option with a strike price of 45 for 4 and sells an out of the money otm call with a strike price of 55 for 3 at expiration company abc s stock trades at 49 in this case the investor would exercise their call paying 45 and then selling for 49 netting a 4 profit the call they sold expires worthless the 4 profit from the stock sale plus the 3 premium and less the 4 premium paid leaves a net profit of 3 for the spread 