Vertical Spread Calculator: Bull & Bear Spreads for Calls & Puts

What Is a Vertical Spread?

• ✅ Expiration Date – Both options share the same expiration.
• ✅ Option Type – Both are either calls or puts.
• ✅ Strike Prices – One option has a higher strike price than the other.
• ✅ Debit or Credit – One option is bought while the other is sold, forming either a debit or credit spread strategy.

In options trading, a ‘vertical spread’ is a strategy where you buy and sell two options of the same type (calls or puts) and expiration, but with different strike prices. To be a true vertical spread, one option is purchased while another is sold. 

The spread is called ‘vertical’ because strike prices are vertically presented on an options chain. You are choosing different strike prices along this vertical line. 

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Types of Vertical Option Spreads

Vertical spreads go by many names. The term vertical serves as an umbrella to capture all variations, but the terminology becomes more specific depending on your strategy. 

Credit Spread – A vertical spread where you take in more credit than you pay in debit. 

• Bear Call Spread – Sell a call at a lower strike, buy a call at a higher strike.
• Bull Put Spread – Sell a put at a higher strike, buy a put at a lower strike.

Debit Spread – A vertical spread where you pay more option premium than you receive.

• Bull Call Spread – Buy a call at a lower strike, sell a call at a higher strike.
• Bear Put Spread – Buy a put at a higher strike, sell a put at a lower strike.

We’re going to cover all of these strategies in detail later. First, let’s understand why traders use vertical spreads and why they can be a better move than just buying or selling options outright.

Downside of Single Options

• Time decay is relentless.
• Significant moves are required to profit.
• Falling volatility crushes premiums. 

The first option trade most beginners place is a long call. They typically buy an out-of-the-money call, hoping for a big payoff if the underlying price rises above the strike price plus the premium paid.

This is also when most traders learn about the brutal effect of theta, or time decay. With each passing day, assuming all other factors stay the same (price and implied volatility), an option loses value—and that loss speeds up as option expiration gets closer.

This accelerating time decay happens because an option's extrinsic value—the part of an option price tied to time and implied volatility—diminishes as there’s less time left for the option to move in the money.

Single Option Example

For example, let’s say you pay $2 for a 105 strike call option in XYZ while the stock is trading at $100. Your option expires in a week.

Three days have passed, and XYZ is trading at $102.50. The stock has moved in your favor, but has it moved enough and fast enough for you to make money on your option? Even with the stock up $2.50, it’s likely not enough for your option to be profitable.

Though we looked at a call option, theta effects put options in the same exact way.

Selling Options Naked

If buying options is a losing proposition, what about selling options? In the long run, option sellers tend to profit more than buyers, but this strategy is best left to the professionals for the following reasons:

• Unlimited risk with naked calls – If you sell a call without owning the underlying stock, your losses can be unlimited since there's no ceiling on how high the stock can go. 
• High margin requirements – Brokers require significant margin to cover potential losses when selling options naked.
• Emotional stress – I have never sold an option naked because I simply don’t have the stomach for the massive risks involved. 

Intro to Vertical Spreads

Options traders who use spreads tend to have the most longevity in this business. Creating spreads is easy, particularly on the TradingBlock platform, which has most option strategies built into templates.

To create a vertical spread from an existing single option:

• If you're short an option, you can spread it out by buying a further out-of-the-money option. This limits your risk compared to selling naked.
• If you're long an option, you can reduce cost and time decay exposure by selling a further out-of-the-money option, turning it into a debit spread.
  

Trading spreads come with pros and cons, but, in my opinion, the pros far outweigh the cons.

What is a Credit/Debit Spread?

As mentioned earlier, all vertical spreads can be broken down into debit or credit spreads. 

Debit Spread – You pay more in premium than you collect.

• Requires an upfront cost.
• Profits if the spread widens.
• Example: Bull Call Spread (buy a lower strike call, sell a higher strike call).

Credit Spread – You collect more in premium than you pay.

• Your account is immediately credited the difference (your max profit).
• Profits if the spread stays narrow.
• Example: Bear Call Spread (sell a lower strike call, buy a higher strike call).

Now that we know the basics let's jump into specific strategies and look at an example of each.

What is a Bull Call Spread?

A bull call spread is a two-legged limited profit bullish options strategy created by:

• Buying a call option at a lower strike price.
• Selling a call option at a higher strike price (same expiration).

The expiration date and option type (call or put) must be the same. When you change those, you create different types of spreads, like the calendar or diagonal spread. 

Like a long call, the bull call spread strategy profits when the stock moves up, but unlike a long call, the max profit is capped because of the short call at the higher strike. Let’s run through the payoffs of this strategy and then look at an example: 

Bull Call Spread Payoffs:

• Max Loss: The net debit paid 
• Max Profit: The difference between the strike prices minus the net premium paid.
• Breakeven Price: Lower strike price + net premium paid.

Bull Call Spread Example

Let’s say ABC is trading at $100/share. We think ABC will be trading 5% higher after earnings come out next week. So, we purchase a 103 call option for 1.50 ($150). To reduce the cost of this trade, we decide to sell the 105 call for 0.75. 

We will enter these positions simultaneously on our trading platform as a vertical spread.

• Days to Expiration: 7 
• Stock Price: $100
• Strike Price 1 (Long Call): 103, bought for $1.50 ($150 total)
• Strike Price 2 (Short Call): 105, sold for $0.75 ($75 total)
• Net Debit (Cost of Trade): $0.75 ($75 total)
• Breakeven Price: $103.75 (Strike 1 + Net Debit)
• Max Loss: $75 (net debit paid)‍
• Max Gain: $125 (difference between strikes - net debit)

Trade Results

Let’s say a week has passed, and the price of ABC skyrocketed to $110 per share. Let’s take a look at our trade to see what happened:

• DTE: 7 → 0
• Stock Price: 100 → 110
• Long Call 103: 1.50 → 7.00
• Short Call 105: 0.75 → 5.00
• Spread Value: 0.75 → 2.00
• Profit: 125 (200 - 75)
• Max Profit Reached, No Gains Above 105

So in this outcome, our max profit was achieved at 105. Because we sold the 105 call, our max profit was capped at $125 (200 - 75).

Had we just bought the 103 call outright, we would have made $550 (700 - 150)! But we played it safe and still locked in a solid 125 return.

What Is a Bear Call Spread?

Unlike the bull call spread, the bear call spread takes in a net credit, making it a credit spread. It is, as the name suggests, a bearish options strategy. 

A bear call spread is a two-legged bearish options strategy created by:

• Selling a call option at a lower strike price.
• Buying a call option at a higher strike price (same expiration).

Let’s run through the payoffs of this strategy and then jump into an example.

Bear Call Spread Payoffs:

• Max Loss: The difference between the strike prices minus the net premium received.
• Max Profit: The net credit received.
• Breakeven Price: Lower strike price + net premium received.

Bear Call Spread Example

Let’s say XYZ is trading at $150/share. We are neutral on the price over the next week. To make some money off this neutrality, we sell the 155 call for 1.50 and buy the 157 call for 0.75 to protect us against that massive upside risk. 

We enter these positions simultaneously on our trading platform as a vertical spread. Here are our trade details:

• Days to Expiration: 7
• Stock Price: 150
• Strike Price 1 (Short Call): 155, sold for 1.50
• Strike Price 2 (Long Call): 157, bought for 0.75
• Net Credit (Premium Collected): 0.75
• Breakeven Price: 155.75 (Strike 1 + Net Credit)
• Max Loss: 125 (difference between strikes - net credit)
• Max Gain: 75 (net credit received)

Trade Results

Let’s say a week has passed, and XYZ skyrocketed to $160/share. Here’s the trade outcome:

• DTE: 7 → 0
• Stock Price: 150 → 160
• Short Call 155: 1.50 → 5.00
• Long Call 157: 0.75 → 3.00
• Spread Value: 0.75 → 2.00
• Loss: 125 (200 - 75)
• Max Loss Hit, No Additional Loss Above 157

Ouch. We lost some money on this trade. But it could have been worse. Had we just sold that 155 call naked, our losses would have been $350 (500 - 150)! This is why traders use spreads—they are great reduced risks alternatives.

What Is a Bear Put Spread?

We’ve covered both call vertical spreads—now it’s time to explore the two put vertical spreads: bear put spreads and bull put spreads.

A bear put spread is a defined-risk bearish options strategy created by:

• Buying a put option at a higher strike price.
• Selling a put option at a lower strike price (same expiration).

This strategy profits when the stock moves down, but unlike a long put, the max profit is capped due to the short put. The trade-off? Lower cost and defined risk.

Bear Put Spread Payoffs:

• Max Loss: Net debit paid.
• Max Profit: Difference between strike prices minus the net debit.
• Breakeven Price: Higher strike price - net debit paid.

Bear Put Spread Example

Let’s say ABC is trading at $50/share. We’re bearish and expect the price to drop, so we buy a 48/45 put spread:

• Buy the 48 put for 1.35
• Sell the 45 put for 0.45

We enter these positions simultaneously as a vertical spread. Here are our trade details:

• Days to Expiration: 7
• Stock Price: 50
• Strike Price 1 (Long Put): 48, bought for 1.35
• Strike Price 2 (Short Put): 45, sold for 0.45
• Net Debit (Cost of Trade): 0.90
• Breakeven Price: 47.10
• Max Loss: 90
• Max Gain: 210

Trade Results

Let’s say a week has passed, and ABC drops to $44/share. Let’s check the trade outcome:

• DTE: 7 → 0
• Stock Price: 50 → 44
• Long Put 48: 1.35 → 4.00
• Short Put 45: 0.45 → 1.00
• Spread Value: 0.90 → 3.00
• Profit: 210 (300 - 90)
• Max Profit Reached, No Gains Below 45

The bear put spread allowed us to profit from a drop in ABC while limiting our overall risk. Sure, we could have made $265 (400 - 135) if we had just bought the 48 put, but we reduced our cost and defined risk (most importantly) by turning it into a spread.

What Is a Bull Put Spread?

The bull put spread is a net credit trade, meaning you receive a credit (premium) when entering the position. This neutral to bullish defined risk strategy is created by:

• Selling a put option at a higher strike price.
• Buying a put option at a lower strike price (same expiration).

This strategy profits when the stock moves higher or stays above the breakeven price. Unlike selling a naked put, the long put defines our risk (and limits our reward).

Bull Put Spread Payoffs

• Max Loss: Difference between strike prices minus the net credit.
• Max Profit: Net credit received.
• Breakeven Price: Higher strike price - net credit received.

Bull Put Spread Example

Let’s say XYZ is trading at $75/share. We’re bullish and expect the price to hold or rise, so we sell a 73/70 put spread:

• Sell the 73 put for 1.40
• Buy the 70 put for 0.60

We enter these positions simultaneously as a vertical spread. Here are our trade details:

• Days to Expiration: 7
• Stock Price: 75
• Strike Price 1 (Short Put): 73, sold for 1.40
• Strike Price 2 (Long Put): 70, bought for 0.60
• Net Credit (Premium Collected): 0.80
• Breakeven Price: 72.20
• Max Loss: 220
• Max Gain: 80

Trade Results

Let’s say a week has passed, and XYZ rises to $78/share. Let’s check the trade outcome:

• DTE: 7 → 0
• Stock Price: 75 → 78
• Short Put 73: 1.40 → 0.00
• Long Put 70: 0.60 → 0.00
• Spread Value: 0.80 → 0.00
• Profit: 80 (80 - 0)
• Max Profit Reached, No Loss Above 73

Since XYZ closed above 73, we kept the full 0.80 premium we collected, resulting in a max profit of $80. Both of the option expired worthless, so no action is needed.

Managing Vertical Spreads

Let's explore a few ways to close and manage vertical spreads:

Before Expiration

• You can close the position early to lock in gains, cut losses, or avoid expiration issues.
• Rolling the spread out in time (calendar spread) or adjusting strikes (vertical spread) can help to limit risk. You can adjust one strike at a time or both together in a 4-way trade. 

In the Money at Expiration

• Credit spreads: Your short option is assigned, and your long option is auto-exercised, resulting in max loss. The difference between strikes will be debited from your account. No action is needed if exercise/assignment fees are similar to commissions. Trade out if they are higher.
• Debit spreads: The position is at max profit with both options in the money. Your broker auto-exercises the long option and the short is assigned, closing the position. No action is needed if exercise/assignment fees are similar to commissions. Trade out if they are higher.

At the Money on Expiration (Pin Risk)

• If the short leg is right at the money, it could be assigned unexpectedly.
• If this happens, you might have an unwanted stock position.
• Close before expiration to avoid pin risk.

Out of the Money at Expiration

• Credit spreads: Both options expire worthless—you keep the full credit.‍
• Debit spreads: Both options expire worthless—you lose the full debit paid.

Vertical Spreads and The Greeks

Let's now explore the relationship between vertical spreads and the option Greeks.

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⚠️ Besides the initial debit paid or margin, it is essential to consider the commissions and fees associated with most options transactions when calculating net profit or loss. These fees can significantly impact the overall return on investment and should be factored into all trades placed. Be sure to read Characteristics and Risks of Standardized Options before trading options.