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Vertical spread

Buying one option and selling another of the same type and expiration at a different strike, capping both risk and reward.

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.

Verticals trade off unlimited upside for defined risk and lower cost. A debit-spread pays to enter and profits from direction; a credit-spread collects premium and profits from the stock staying away from the short strike.

Maximum loss and gain are known at entry, which makes verticals the standard way to express a directional view with options without excessive theta or vega exposure.

Example: buy the $100 call for $5, sell the $110 call for $2. Net debit $3 ($300). Max profit is the $10 width minus $3 = $7 ($700) if the stock is above $110 at expiration; max loss is $300.

Related: credit-spread, debit-spread, iron-condor, strike-price

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