Definition
A vertical spread is a defined-risk options strategy built from exactly two legs: the trader buys one option and sells another of the same type — both calls or both puts — with the same expiration date but different strike prices. The position is "vertical" because the strikes sit at different levels on the same expiration column of an option chain.
By pairing a long and a short leg, the spread caps both the maximum gain and the maximum loss, making the position cheaper and more contained than a single option.
Why it matters
How it works
There are four basic verticals. A bull call spread buys a lower-strike call and sells a higher one, profiting if the stock rises. A bear put spread buys a higher-strike put and sells a lower one, profiting if the stock falls. The credit variants — bull put and bear call spreads — collect premium and profit if the stock stays on the favorable side of the short strike.
The distance between strikes sets the maximum gain; the net debit or credit sets the maximum loss. Because the legs partly cancel, the spread costs less and risks less than the long leg alone.