ALGO Swamp

Intermediate

Options 201: Vertical Spreads — Bull call, bear put, and credit spreads explained

Wait. Then Bite.

Recommended first: Options 101

Options 201 assumes you know calls and puts, strike and expiration, the basic Greeks, and how to size a trade from max loss. If that's new, start with Options 101: Options Trading for Beginners, or review calls and puts explained (free).

Options 101 covered single calls and puts. Options 201 puts two of them together.

Recommended first: Options 101. This course assumes you already know calls and puts, strike, expiration and premium, intrinsic and extrinsic value, the basic Greeks, how to read a thinkorswim option chain, and how to size a trade from max loss. If any of that is new, start with Options 101.

Modules 1 and 2 are free. The rest of the course is $39 once for everyone. A desk plan and the 7-day trial do not cover Options 201.

A vertical spread is one of the most common defined-risk structures in options. This course covers all four types: the bull call spread, bear put spread, bull put spread and bear call spread. You'll learn how each one is built, how to calculate its max profit, max loss and break-even, how its Greeks behave, how to manage it, and how to build one in thinkorswim.

There are eight short modules. Each has a plain-language lesson, a worked example, a thinkorswim tip and a 5-question quiz. At the end there's a 15-question final exam. Score 80% (12 of 15) to pass.

Every price in this course is hypothetical and uses the made-up ticker XYZ. Do the math yourself. The multiplier is always 100.

Wait. Then Bite. Know your max loss before you enter. Practice in paperMoney first.

This is educational content, not financial advice.

$39once

Start Modules 1–2 freeBuy Options 201 · $39

What you'll learn

  • What a vertical spread is
  • Debit spreads: bull call and bear put
  • Credit spreads: bull put and bear call
  • Choosing strikes, width, and expiration
  • Max profit, max loss, and break-even math
  • The Greeks on vertical spreads
  • Managing, closing, and rolling spreads
  • Placing a vertical spread in thinkorswim

Course outline: 8 modules

  1. Module 1 · FreeWhat a Vertical Spread Is and Why Traders Use OneDefine a vertical spread: one long and one short option, same type, same underlying, same expiration, different strikes · Explain the difference between a debit vertical and a credit vertical · Describe why traders use verticals: defined risk, lower cost and a capped outcome
  2. Module 2 · FreeDebit Verticals: Bull Call Spread and Bear Put SpreadBuild a bull call spread and a bear put spread from the correct legs · Calculate max loss, max profit and break-even for a debit vertical · Explain how a debit vertical's value changes at expiration across price zones
  3. Module 3Credit Verticals: Bull Put Spread and Bear Call SpreadBuild a bull put spread and a bear call spread from the correct legs · Calculate max profit, max loss and break-even for a credit vertical · Explain why a credit vertical's risk is larger than its credit and how that affects sizing
  4. Module 4Choosing Strikes, Width and ExpirationExplain the trade-off between strike distance, credit or debit, and the model's probability estimates · Describe how width changes max profit, max loss and buying power · Judge liquidity using the bid-ask of each leg and of the spread as a whole
  5. Module 5Max Profit, Max Loss and Break-Even MathCalculate max profit, max loss and break-even for all four vertical types · Calculate P/L at expiration for any stock price · Check that max profit + max loss always equals the width
  6. Module 6The Greeks on VerticalsCalculate a vertical's net delta, theta, vega and gamma from its legs · Explain why debit and credit verticals usually have opposite theta and vega exposure · Describe how a vertical's Greeks change as expiration approaches
  7. Module 7Managing, Closing and Rolling VerticalsExplain early assignment risk on short legs, especially in-the-money short calls before an ex-dividend date · Describe pin risk and why many traders close verticals before expiration · Calculate the result of closing and of rolling a vertical, and explain legging risk
  8. Module 8Building and Placing Verticals in thinkorswimBuild a vertical from the Option Chain using the Spread selector set to Vertical · Set a limit order at a net debit or net credit and review the order before sending · Use Analyze > Risk Profile and paperMoney to check a spread before placing it
  9. Final exam · 12 of 15 to passFinal exam

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Options 201 FAQ

Is Options 201 free?

Modules 1 and 2 (What Is a Vertical Spread? and Bull Call Spread and Bear Put Spread) are free. The full course, with all eight modules, the quizzes, the final exam and the certificate, is $39 once for everyone. A desk plan and the 7-day trial do not cover Options 201.

Do I need to take Options 101 first?

No. Options 101 is recommended, but you can start Options 201 without it. Options 201 assumes you already know calls and puts, strike, expiration and premium, intrinsic and extrinsic value, the basic Greeks, how to read a thinkorswim option chain, and how to size a trade from max loss. If any of that is new, start with Options 101. Modules 1 and 2 are free.

What is a vertical spread?

A vertical spread is one long and one short option of the same type, on the same underlying, with the same expiration and different strikes. It defines your risk and caps your reward. At expiration it is worth between $0 and the width between the strikes, times 100.

What is the difference between a debit spread and a credit spread?

You pay a net debit to open a debit spread, such as a bull call spread or a bear put spread. You collect a net credit to open a credit spread, such as a bull put spread or a bear call spread. A debit spread's max loss is the debit; a credit spread's max loss is the width minus the credit.

How do you calculate the max loss and break-even of a vertical spread?

Debit spread: max loss = the debit, max profit = width minus the debit, and break-even = long strike plus the debit for a call spread or minus the debit for a put spread. Credit spread: max profit = the credit, max loss = width minus the credit, and break-even = short strike minus the credit for a bull put spread or plus the credit for a bear call spread. Multiply by 100 per contract, and remember commissions.

Do I need thinkorswim or special broker approval?

You don't need thinkorswim to learn the material. Each module has a thinkorswim tip, and Module 8 walks through placing a vertical in thinkorswim. Practice in paperMoney first. To trade spreads, brokers typically require a specific options approval level, often higher than for buying calls and puts, and some require a margin account.

How does the final exam work?

The final exam has 15 questions. Score 80% (12 of 15) to pass and print a certificate of completion with your name and the date.

Is Options 201 financial advice?

No. Options 201 is educational content, not a recommendation to buy or sell any security or to use any strategy. All prices in the course are hypothetical. Options trading carries substantial risk and is not suitable for everyone.