A vertical spread is an option spread built from two options of the same type – both calls or both puts – with the same expiration date but different strike prices. The name comes from the options chain layout, where strike prices are listed vertically.

Verticals are the simplest multi-leg options strategy. Both maximum profit and maximum loss are known at entry, making them popular with traders who want defined-risk directional exposure.

The four verticals#

There are exactly four vertical spreads, defined by option type and whether the position is net long or net short:

Bull call spread (debit)#

Buy a lower-strike call, sell a higher-strike call.

The trader pays a net premium (debit) and profits if the underlying rises above the breakeven. Both profit and loss are capped.

Bear put spread (debit)#

Buy a higher-strike put, sell a lower-strike put.

Mirror image of the bull call spread, but on the downside. The trader profits if the underlying falls below the breakeven.

Bull put spread (credit)#

Sell a higher-strike put, buy a lower-strike put.

The trader collects a net premium (credit) and profits as long as the underlying stays above the breakeven. This is the credit-spread counterpart of the bull call spread – both are bullish, but cash flow timing differs.

Bear call spread (credit)#

Sell a lower-strike call, buy a higher-strike call.

The bearish counterpart of the bull put spread. The trader profits when the underlying stays below the breakeven.

Payoff profiles#

All four verticals share the same shape: a flat region (max loss), a sloped region (between the strikes), and another flat region (max profit). The difference is which direction is profitable.

For a bull call spread with strikes at $50 and $55, purchased for a $2 premium:

Profit
  +3 |          ___________
     |         /
   0 |--------/
     |       /
  -2 |______/
     +--+--+--+--+--+--+--→ Price at expiry
       45 47 50 52 55 58

• Below $50: max loss ($2)
• $50–$55: profit increases linearly
• Above $55: max profit ($3)

Debit vs. credit: choosing between them#

A bull call spread and a bull put spread at the same strikes express the same directional view. The difference is practical:

• Debit spreads pay upfront and receive value at expiration. Max loss equals the premium. Better when implied volatility is low (options are cheap to buy).
• Credit spreads collect premium upfront and hope the options expire worthless. Max loss exceeds the premium. Better when implied volatility is high (options are expensive to sell).

In efficient markets, put-call parity ensures the risk/reward of equivalent debit and credit verticals is nearly identical after accounting for interest rates and dividends.

Strike selection#

The width between strikes determines the risk/reward tradeoff:

• Narrow spreads (e.g. 1–2 strikes apart) – lower cost, lower max profit, higher probability of max loss. Essentially leveraged directional bets.
• Wide spreads (e.g. 5–10 strikes apart) – higher cost, higher max profit, lower probability of max profit. Approach the behavior of a single long option as width increases.

The option Greeks help calibrate strike choice. Delta approximates the probability that the short strike expires in-the-money; theta tells you how much time decay works for or against the position daily.

Vertical spreads in DeFi#

On-chain options protocols support vertical spread construction, but the experience differs from centralized exchanges:

• Collateral – protocols that recognize spreads as a single position can collateralize at max-loss rather than per-leg. This makes verticals capital-efficient. Protocols that don’t recognize spreads effectively double the capital requirement.
• Execution – building a spread requires two transactions (or a multicall). On-chain, each leg hits the protocol’s AMM or order book, so slippage on each leg compounds.
• Settlement – smart contracts handle exercise automatically. European-style settlement (exercised only at expiry) is standard in DeFi, simplifying the spread’s payout calculation.
• Volatility surface – on-chain vol oracles or the protocol’s own pricing model determine the premiums. These can diverge from centralized markets, creating arbitrage opportunities and pricing inefficiencies for spread traders.