Options Spread

About the Options Spread Calculator

The options spread calculator helps traders evaluate the risk and reward of four vertical options spread strategies: Bull Call, Bear Call, Bull Put, and Bear Put spreads. Each strategy consists of simultaneously buying and selling two options of the same type (calls or puts) with different strike prices but the same expiration date. The calculator computes the net debit or credit, maximum loss, maximum profit, breakeven price, and potential profit at any target price.

Vertical Spread Options Strategies

A vertical spread involves two options contracts of the same type - either two calls or two puts. The key difference between the four strategies is whether you are bullish or bearish on the underlying stock:

• Bull Call Spread: Buy a call at a lower strike and sell a call at a higher strike. Profits when the stock rises. This is a debit spread.
• Bear Call Spread: Sell a call at a lower strike and buy a call at a higher strike. Profits when the stock falls. This is a credit spread.
• Bull Put Spread: Buy a put at a lower strike and sell a put at a higher strike. Profits when the stock rises. This is a credit spread.
• Bear Put Spread: Buy a put at a higher strike and sell a put at a lower strike. Profits when the stock falls. This is a debit spread.

Key Formulas

For a Bull Call Spread, let $S_L$ be the long call strike, $S_S$ be the short call strike, $P_L$ the long call premium paid, and $P_S$ the short call premium received, with $n$ contracts:

For a Bear Call Spread (credit spread), the formulas reverse, with the maximum loss occurring if the stock rises above the higher strike price, and the maximum profit being the net credit received.

For put spreads, the logic is similar but the directional orientation is reversed. In a Bull Put Spread, you receive a net credit and profit if the stock stays above the short put strike. In a Bear Put Spread, you pay a net debit and profit if the stock falls below the breakeven price.

Debit vs Credit Spreads

A debit spread costs money to enter (premium paid exceeds premium received). The Bull Call and Bear Put spreads are debit spreads. The maximum loss is the net debit paid, and the maximum profit is capped. A credit spread generates income to enter (premium received exceeds premium paid). The Bear Call and Bull Put spreads are credit spreads. The maximum profit is the net credit received, and the maximum loss is capped.