As defined by investopedia.com, An options trading strategy with which a trader makes a simultaneous purchase and sale of two options of the same type that have the same expiration dates but different strike prices is called as Vertical spread.
To define in a simpler way, a vertical spread consists of two trades, one buy and one sell of with both either put or call. As both are opposite there is either a net debit or credit. Hence they are also called credit or debit spreads. And depending on whether the option is put or call, the names for the vertical spread are
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To define in a simpler way, a vertical spread consists of two trades, one buy and one sell of with both either put or call. As both are opposite there is either a net debit or credit. Hence they are also called credit or debit spreads. And depending on whether the option is put or call, the names for the vertical spread are
- Credit put spread - A lower put is purchased and a higher put is sold. Typically has a higher probability of success and higher risk. This position is bullish.
- Credit call spread - A lower call is purchased and a higher call is sold. Typically has a higher probability of success and higher risk. This position is bearish.
- Debit put spread - A higher put is purchased and a lower put is sold. Typically has a lower probability of success and lower risk. This position is bearish.
- Debit call spread - A higher call is purchased and a lower call is sold. Typically has a lower probability of success and lower risk. This position is bullish.
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