Vertical Spreads Explained: Bull Call, Bear Put, and Credit Spreads, With Payoff Tables

A vertical spread is a position where you buy one option and sell another of the same type (both calls or both puts) on the same stock with the same expiry, but at different strike prices. The option you sell offsets part of the cost or risk of the one you buy, so both the maximum gain and the maximum loss are fixed and known before you enter the trade.

In short: a vertical spread caps both sides. The distance between the two strikes (the width) sets the total range of outcomes: max gain + max loss = width x 100. A debit spread costs money up front and profits if the stock moves your way; a credit spread pays you up front and profits if the stock does not move against you. There are four basic versions: bull call, bear put (both debit), bull put, and bear call (both credit).

How the four versions are built

“Vertical” refers to the strikes being stacked above one another on an options chain, in the same expiry column.

Spread	Legs	Paid or received	Profits if the stock
Bull call	Buy lower-strike call, sell higher-strike call	Debit (you pay)	rises
Bear put	Buy higher-strike put, sell lower-strike put	Debit (you pay)	falls
Bull put	Sell higher-strike put, buy lower-strike put	Credit (you receive)	stays above the short strike
Bear call	Sell lower-strike call, buy higher-strike call	Credit (you receive)	stays below the short strike

In every version, the option you buy is the one that limits your risk, and the option you sell is the one that limits your reward. The building blocks are explained in call options explained and its companion article on puts.

Worked example 1: a bull call spread (debit)

Hypothetical Maple Widgets Inc. trades at $50. With 45 days to expiry, you buy the $50 call for an illustrative $2.90 and sell the $55 call for $1.15.

Net debit: $2.90 minus $1.15 = $1.75, or $175.
Width: $55 minus $50 = $5.
Maximum gain: ($5 minus $1.75) x 100 = $325, at $55 or above.
Maximum loss: $175, at $50 or below.
Breakeven: $50 + $1.75 = $51.75.

Price at expiry	Long $50 call	Short $55 call	Profit or loss
$40	$0	$0	minus $175
$45	$0	$0	minus $175
$50	$0	$0	minus $175
$51.75	+$175	$0	$0 (breakeven)
$53	+$300	$0	+$125
$55	+$500	$0	+$325
$60	+$1,000	minus $500	+$325

(The leg columns show value at expiry; the last column subtracts the $175 debit.) Compared with buying the $50 call alone for $290, the spread costs $115 less and has a lower breakeven ($51.75 vs $52.90), but gives up everything above $55.

Worked example 2: a bull put spread (credit)

Same stock, same expiry. You sell the $45 put for $1.00 and buy the $40 put for $0.25.

Net credit: $1.00 minus $0.25 = $0.75, or $75.
Maximum gain: $75, at $45 or above.
Maximum loss: ($5 minus $0.75) x 100 = $425, at $40 or below.
Breakeven: $45 minus $0.75 = $44.25.

Price at expiry	Short $45 put	Long $40 put	Profit or loss
$35	minus $1,000	+$500	minus $425
$40	minus $500	$0	minus $425
$42	minus $300	$0	minus $225
$44.25	minus $75	$0	$0 (breakeven)
$45	$0	$0	+$75
$50	$0	$0	+$75
$60	$0	$0	+$75

(The last column adds the $75 credit.) Notice the asymmetry: a credit spread with a short strike out of the money usually wins small and often, and loses larger and less often. That is not an edge in itself. The option prices already reflect the market’s view of how likely each outcome is.

The other two, in brief

Using the same illustrative prices:

Spread	Legs	Net	Max gain	Max loss	Breakeven
Bear put 50/45	Buy $50 put at $2.70, sell $45 put at $1.00	$170 debit	$330	$170	$48.30
Bear call 55/60	Sell $55 call at $1.15, buy $60 call at $0.40	$75 credit	$75	$425	$55.75

Debit or credit: often the same bet in different clothes

A bull call spread and a bull put spread at the same two strikes have almost the same payoff. Compare the 50/55 bull call spread above with a 50/55 bull put spread: sell the $55 put for an illustrative $5.90 and buy the $50 put for $2.70, for a credit of $3.20.

	Bull call 50/55 (debit)	Bull put 50/55 (credit)
Net premium	$175 paid	$320 received
Max gain	$325	$320
Max loss	$175	$180
Breakeven	$51.75	$51.80

The small differences come from interest on cash and rounding in the illustrative prices. This follows from put-call parity, the relationship that ties call and put prices together (see Black-Scholes explained). What differs in practice is the cash flow (paying now vs receiving now and posting collateral), which options are in the money, and therefore which legs face early assignment. “Credit” does not mean safer, and “debit” does not mean more speculative. The strikes, relative to the stock price, decide the risk.

Formulas for any vertical spread

Debit spreads: max loss = debit; max gain = (width minus debit) x 100.
Credit spreads: max gain = credit; max loss = (width minus credit) x 100.
Breakeven: for call spreads, the lower strike + debit (bull call) or the short strike + credit (bear call). For put spreads, the higher strike minus debit (bear put) or the short strike minus credit (bull put).

Brokers generally require you to hold the maximum loss as collateral on a credit spread, and spreads usually need a higher options approval level than buying calls or puts; see options approval levels.

How time decay and volatility affect it

Because a vertical has one long and one short option, much of the time decay and volatility exposure cancels out. What remains depends on where the stock is relative to the strikes.

Time decay. Using a simple pricing model at 40% implied volatility, the bull call spread above would be worth:

Stock price	45 days left	20 days left	5 days left
$45	$0.67	$0.27	$0.01
$50	$1.76	$1.51	$0.93
$55	$3.06	$3.37	$4.00
$60	$4.06	$4.55	$4.97

When the stock is below the long strike, time works against the debit spread. When it is at or above the short strike, time works for it, and the spread creeps toward its $5.00 maximum. A useful consequence: even if the stock jumps to $55 right away, the spread is worth only about $3.06 with 45 days left, not $5.00. The full value arrives only near expiry. For credit spreads the effect is mirrored. More on this in theta and time decay.

Volatility. Net vega is small. Higher implied volatility tends to help a debit spread when the stock is near the long strike and hurt it when the stock is beyond the short strike, and the reverse for credit spreads.

Assignment and early exercise

US equity options are American-style, so the short leg can be assigned early, especially:

a short call that is in the money just before an ex-dividend date, when its remaining time value is less than the dividend; or
a short put that is deep in the money with little time value left.

If your short leg is assigned, you suddenly hold a stock position (short 100 shares from a short call, long 100 shares from a short put). Your long option still limits your risk at expiry, but you may face margin calls, borrow fees, or dividend charges in the meantime. The details are in assignment risk and early exercise.

Pin risk at expiry. If the stock closes between the strikes, one leg is in the money and the other isn’t. With the bull call spread at $53, your long $50 call is likely to be exercised automatically (the Options Clearing Corporation’s exercise-by-exception procedure exercises equity options $0.01 or more in the money unless instructed otherwise), so you would buy 100 shares for $5,000 and own them over the weekend. If the stock closes right at the short strike, you may not know until after the close whether you have been assigned.

What can go wrong

Losing the full debit or the full width. Defined risk is still real risk. On the bull put spread, a fall below $40 costs $425 to make $75.
Partial value before expiry. A spread that is “right” can still be worth much less than its maximum if you close early.
Early assignment on the short leg can create stock positions, margin calls, and extra costs.
Closing a leg separately. Exiting one leg and keeping the other turns a defined-risk spread into a naked option with very different risk.
Costs. Two legs mean two bid-ask spreads. On low-priced spreads, those costs can be a large share of the maximum gain.
Gaps through both strikes. An overnight move can take a credit spread from maximum gain to maximum loss with no chance to adjust.

The short version

A vertical spread pairs a long and a short option of the same type and expiry at different strikes, fixing both the best and worst case. Debit spreads pay to bet on a move; credit spreads collect to bet against one. Max gain plus max loss always equals the width, the breakeven is a strike adjusted by the net premium, and the short leg can be assigned before expiry.