Get Ahead with Vertical Option Spread Strategies
A vertical option spread is two options of the same type (both calls or both puts) on the same underlying and expiration, one bought and one sold at different strikes. The four versions are the bull call spread and bull put spread (for a rising price) and the bear put spread and bear call spread (for a falling price). Because one leg offsets the other, both the maximum profit and the maximum loss are fixed when you open the trade. This is educational content, not investment advice.
What is a Vertical Option Spread Strategy?
A vertical option spread strategy buys and sells two option contracts of the same type with different strikes on the same underlying asset and the same expiration. Debit spreads (bull call, bear put) cost money to open; credit spreads (bull put, bear call) pay a premium up front.
Benefits of using a Vertical Option Spread Strategy
A vertical option spread strategy costs less and risks less than buying a single option outright.
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A vertical option spread strategy can reduce the loss potential and lower your start-up costs.
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Bull spreads fit rising markets and bear spreads fit falling markets, so you can express either view with defined risk.
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Credit spreads can profit if the underlying stays flat, because the short option loses time value.
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It also allows for the ability to simultaneously identify the maximum profit and loss boundaries, thus allowing you to plan your allocations.
How can MarketXLS help?
MarketXLS is an Excel add-in that pulls option chains and prices into a spreadsheet, so you can model vertical option spread strategies such as Bull Call Spreads and track their profit and loss. Option prices are end-of-day on the Standard plan and real-time streaming on the Advanced and Business plans. The options profit calculator shows the payoff of a spread before you place it.
Here are some templates that you can use to create your own models
Browse the MarketXLS options-strategy templates.
Relevent blogs that you can read to learn more about the topic