Vertical Spread Calculator

A vertical spread is an options strategy that involves buying and selling options of the same type (calls or puts) and expiration date, but with different strike prices. This creates a position with limited risk and limited reward.

When to use this calculator:

  • When you have a directional view but want to limit your risk
  • When you want to reduce the cost of buying an option (bull call or bear put)
  • When you want to generate income with a defined risk (bull put or bear call)
  • When implied volatility is high and you want to create a more cost-effective directional trade

Vertical Spread Calculator

Analyze vertical spread strategies

Understanding Vertical Spreads

Types of Vertical Spreads

Bull Call Spread:

Buy a lower strike call, sell a higher strike call. Used when you're moderately bullish.

Bear Put Spread:

Buy a higher strike put, sell a lower strike put. Used when you're moderately bearish.

Bull Put Spread:

Sell a higher strike put, buy a lower strike put. Used when you're neutral to bullish.

Bear Call Spread:

Sell a lower strike call, buy a higher strike call. Used when you're neutral to bearish.

Calculator Fields

  • Stock Price:

    The current market price of the underlying security.

  • Spread Type:

    The type of vertical spread (bull call or bear put).

  • Long Strike:

    The strike price of the option you're buying.

  • Short Strike:

    The strike price of the option you're selling.

  • Premiums:

    The cost or credit per share for the option contracts.

  • Contracts:

    Number of spreads to create (each spread involves 2 option contracts).

Results Explained

  • Max Profit:

    The maximum amount you can gain from the spread. For a bull call spread, this is the difference between strikes minus the net debit.

  • Max Loss:

    The maximum amount you can lose from the spread, typically the net debit paid.

  • Break-Even Point:

    The stock price at which the spread will neither make nor lose money at expiration.

  • Return on Risk:

    The percentage return on your risked capital if the trade reaches maximum profit.

  • Net Amount:

    The net debit or credit for establishing the position (per share).

  • Width:

    The difference between the two strike prices, which defines the maximum potential of the spread.

Debit Spread Strategy (Bull Call / Bear Put)

  • You pay a net debit to open the position
  • Maximum loss is limited to the premium paid
  • Bull call spreads profit when stock rises above break-even
  • Bear put spreads profit when stock falls below break-even
  • Provides leverage with defined risk
  • Less expensive than buying a single option

Credit Spread Strategy (Bull Put / Bear Call)

  • You receive a net credit to open the position
  • Maximum profit is limited to the premium received
  • Bull put spreads profit when stock stays above lower strike
  • Bear call spreads profit when stock stays below lower strike
  • Higher probability of profit but lower reward relative to risk
  • Benefits from time decay (theta positive)

Important Notes

  • Vertical spreads significantly reduce the impact of changes in implied volatility compared to single options.
  • The wider the spread between strikes, the more expensive the spread but the greater the potential profit.
  • Early assignment risk exists with credit spreads, especially when short options are in-the-money.
  • This calculator shows theoretical values at expiration, not accounting for time value during the trade.