Vertical Spread

Bull call spread (debit): Buy a lower strike call, sell a higher strike call. Profits when the stock rises. Maximum profit = spread width minus debit paid. Most common bullish vertical spread.

Bear put spread (debit): Buy a higher strike put, sell a lower strike put. Profits when the stock falls. Maximum profit = spread width minus debit paid.

Bull put spread (credit): Sell a higher strike put, buy a lower strike put. Profits when the stock stays above the sold strike. Maximum profit = credit received. This is the mirror of a bear put spread and is popular for income generation.

Bear call spread (credit): Sell a lower strike call, buy a higher strike call. Profits when the stock stays below the sold strike. Maximum profit = credit received.

Debit vs credit: Debit spreads pay premium upfront and profit from directional moves. Credit spreads collect premium upfront and profit from time decay and the stock staying in a range. Both have identical risk profiles at the same strikes — the distinction is primarily about cash flow timing.

Strike selection: The closer the long strike is to the current price, the higher the probability of profit but the more expensive the spread. The farther out-of-the-money, the cheaper but lower probability.

Spread width: Narrow spreads ($1-$2 wide) have lower max risk but also lower max profit. Wide spreads ($5-$10 wide) offer larger potential gains but require more capital. Match the width to your account size and risk tolerance.

Delta-based selection: Many traders select the long strike at 50 delta (at-the-money) and the short strike at 30 delta (out-of-the-money) for a balanced risk/reward profile.

Expiration: 30-45 days to expiration is the sweet spot for most vertical spreads. Too short (under 14 days) and the spread is heavily influenced by gamma risk. Too long (over 60 days) and the capital is tied up with slow theta decay.

IV consideration: Buy debit spreads when implied volatility is low (options are cheap). Sell credit spreads when IV is high (options are expensive and premium is rich).

Profit target: Close debit spreads at 50-75% of maximum profit. Close credit spreads at 50% of credit received. Waiting for full maximum profit requires the stock to be precisely beyond your strikes at expiration, which is risky.

Loss limit: Close the spread if it reaches 100-200% of the initial debit (for debit spreads) or if the spread value doubles from your entry credit (for credit spreads).

Rolling: If the trade is working but needs more time, you can roll the spread to a later expiration. This extends the trade but may add to the net debit.

Assignment risk: Short options that go in-the-money near expiration can be assigned early, especially around ex-dividend dates. Close or roll spreads before expiration week to avoid unexpected assignment.

Early close: If the stock moves strongly in your favor quickly, consider closing early to lock in profit rather than waiting for theta to finish the job. A bird in the hand matters more than maximum theoretical profit.