Definition
A debit spread is an options position made of two legs of the same type and expiration, in which the option bought carries more premium than the option sold. Because the trader pays more than they receive, the position opens for a net debit.
The debit is the maximum loss. The strategy is a lower-cost, defined-risk way to take a directional view, since the sold leg offsets part of the cost of the bought leg.
Why it matters
How it works
A bull call spread and a bear put spread are the two common debit structures: the trader buys a closer option and sells a farther one in the direction of the bet. The sold leg reduces the cash outlay, which lowers both the breakeven hurdle and the maximum gain. If the underlying moves the right way past the short strike, the spread reaches its maximum value, equal to the strike width. If it moves the wrong way, the loss is limited to the debit paid. Debit spreads are the directional counterpart to income-oriented credit spreads.