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Debit spread

A vertical spread where you pay a net premium, profiting from a directional move up to the short strike.

Payoff of a bull call spread at expiryA flat loss below the lower strike, a rising middle section, and a flat capped profit above the upper strike.Profit / loss per share08895115122100110buy the 100 callsell the 110 callBreakeven 103Max profit 7capped above 110Max loss 3 — the net debitUnderlying price at expiry
Vertical spread: payoff at expiry. Buying the 100 call and selling the 110 call costs 3 net. Below 100 that 3 is the whole loss; above 110 the gain stops at 7, because the sold call gives back every dollar the bought call earns beyond 110.

A bull call spread (buy a call, sell a higher call) or bear put spread costs less than the single long option and has less theta and vega exposure, in exchange for capping the gain at the short strike.

Debit spreads suit a view of a moderate move. If you expect an enormous move, the cap hurts; if you expect a small one, the reduced cost helps.

Example: stock at $50. Buy the $50 call for $3, sell the $55 call for $1.20. Debit $1.80 ($180). Max profit = $5 - $1.80 = $3.20 ($320) above $55; breakeven $51.80.

Related: vertical-spread, credit-spread, call-option, put-option

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