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Glossary · Options

Vertical spread

Buying one option and selling another of the same type and expiration at a different strike.

Why it matters

The sold option pays for part of the bought one, and caps both profit and loss. It is the building block of most defined risk strategies.

How to read it

The width between strikes sets the maximum loss for credit spreads and maximum profit for debit spreads.

Related

Credit and debitA debit trade costs money up front; a credit trade pays you up front.Max profit and max lossThe most a position can make and lose, if held to expiration.

In the Cluenex app, this explanation opens next to every vertical spread figure, with the live reading for the stock you are looking at. Open it in Cluenex