Vertical spreads

A vertical spread buys one option and sells another of the same type (both calls or both puts) and the same expiration, at a different strike. The gap between the strikes sets the most the spread can be worth.

• Debit spread: the option you buy costs more than the one you sell, so you pay up front. The most you can lose is that cost.
• Credit spread: the option you sell brings in more than the one you buy, so you collect up front. The most you can lose is the gap between strikes less the credit.