Strategy guide
Vertical spread payoff calculator guide
A vertical spread buys one option and sells another option of the same type and expiration to define both risk and reward.
Formula focus
Example: buy the 100 call for $6 and sell the 110 call for $2. Net debit is $4, max loss is $400, max profit is $600 before costs.
Practical limitations
The clean formula assumes a target price at expiration. Real fills, spreads, early assignment, exercise decisions, implied volatility, and time remaining can all change the actual outcome.
Use the calculator
Open the calculator and compare at least three target prices: bearish, base case, and bullish. If one adverse scenario is unacceptable, the trade may be too large or poorly structured.
Primary reading: OIC Profit and Loss Simulator · FINRA options overview · SEC Investor Bulletin on options · OIC options pricing overview