A vertical spread is an options strategy where you buy one option and sell another option at a different strike price, but both expire in the same month.
Bull Call Spread — Buy a lower call, sell a higher call. Bullish bet with limited profit.
Bear Put Spread — Buy a lower put, sell a higher put. Bullish bet on premium collection.
Bull Put Spread — Sell a higher put, buy a lower put. Collect premium while limiting risk.
Bear Call Spread — Sell a higher call, buy a lower call. Bearish bet with limited risk.
Let's say Tesla is $200:
Maximum profit: $10 - $7 = $3 per share ($300) if stock closes above $205. Maximum loss: $7 per share ($700) if stock closes below $195.
Lower Cost — Selling the other leg offsets some or all of your cost.
Lower Risk — Built-in profit cap and loss cap.
Higher Probability — Smaller moves are needed for profit.
Defined Risk — You know exactly how much you can win and lose before entering.
Related: Bull Call Spread, Bear Put Spread, Bull Put Spread, Bear Call Spread
