What a vertical spread is
A bull call spread buys a lower-strike call and sells a higher-strike call on the same stock and expiry. The short call's premium offsets part of the long call's cost, which lowers your breakeven and your risk, in exchange for capping the upside at the short strike. Because both legs are defined at entry, the whole trade reduces to three numbers: the net debit, the width between strikes, and the breakeven.
Worked example: $50/$55 bull call spread
You buy the $50 strike call for $3.00 and sell the $55 strike call for $1.20, same expiry.
Net debit: $3.00 - $1.20 = $1.80 per share, or $180 for the spread. This is your maximum loss, reached if the stock finishes at or below $50 and both options expire worthless.
Maximum profit: the strike width minus the debit: ($55 - $50) - $1.80 = $3.20 per share, or $320, reached if the stock finishes at or above $55. There the long call is worth $5.00, the short call costs you $5.00 of obligation... more precisely, the spread is worth the full $5.00 width, minus the $1.80 you paid = $3.20 per share.
Breakeven: long strike + debit = $50 + $1.80 = $51.80. At $51.80 the long call is worth $1.80, exactly your debit, and the short call is worthless.
Profit at different expiry prices
| Stock at expiry | Spread value | Total P/L |
|---|---|---|
| $50 | $0.00 | -$180 |
| $51.80 | $1.80 | $0 |
| $55 | $5.00 | +$320 |
| $60 | $5.00 | +$320 |
The $60 row shows the cap: above $55 the spread cannot gain another dollar, because the short $55 call rises in lockstep with the long $50 call. You traded the moonshot for a $180 defined risk and a $320 defined reward.
Why traders use spreads instead of outright options
Cost is the headline reason. Buying the $50 call alone costs $3.00 per share ($300) with a $53 breakeven. The spread costs $1.80 ($180) with a $51.80 breakeven: cheaper, lower breakeven, defined risk. The price is the capped upside and a lower probability of the maximum payout, since the stock must travel the full width. Spreads also suffer less from time decay per dollar risked, because the short leg's decay offsets the long leg's.
The bearish mirror: the bear put spread
Flip the strikes and you get the bear put spread. You buy the $55 put for $3.20 and sell the $50 put for $1.60. Net debit = $3.20 - $1.60 = $1.60 per share, or $160 maximum loss (stock at or above $55 at expiry). Maximum profit = ($55 - $50 - $1.60) x 100 = $340, reached at $50 or below, where the spread is worth the full $5.00 width. Breakeven = $55 - $1.60 = $53.40. Same three-number structure, same capped risk, now pointed downhill. The bull call and bear put spreads are the two workhorse verticals; learn one and you know the other.
The fine print on the short leg
The short call can be assigned early if it goes deep in the money before expiry, though with both legs on the same expiry the long call covers the obligation. Keep both legs on the same expiration and this stays a defined-risk trade. Our homepage calculator handles the long-call math for either leg; enter the long strike and premium to sanity-check the debit side.