Credit spread and debit spread option strategies are known as vertical spreads. Vertical spreads are multi-leg, defined risk options strategies with two different strike prices sharing the same expiration date. They are called vertical spreads because the strikes are listed vertically on an options chain:
So, what's the difference between credit spreads vs debit spreads?
A credit spread is an options strategy that involves selling one option and buying another option further out-of-the-money for a net credit.
A debit spread is an options strategy that involves buying one option and selling another option at a strike price further out for a net debit.
Both credit spreads and debit spreads can be bullish or bearish, depending on how the strategy is set up. Also, all vertical spreads have defined risk, which means you know your max loss and max profit before entering the trade.
Let's look at some examples of bullish and bearish vertical spreads (and be sure to check out our in-depth options strategy guides).
Long Call Spread
A long call spread, aka bull call spread, is a bullish strategy that is created when a trader buys a call option and sells a higher strike call option with the same expiration date. Long call spreads are opened for a net debit (you pay money to enter the position).
Long Put Spread
A long put spread, aka bear put spread, is a bearish strategy that is created when a trader buys a put option and sells a lower strike put option with the same expiration date. Long put spreads are opened for a net debit.
Short Put Spread
A short put spread, aka bull put spread, is a bullish strategy created when a trader sells a put option and buys a lower strike put option with the same expiration date. Short put spreads are opened for a net credit (you get paid to enter the trade).
Short Call Spread
A short call spread, aka bear call spread, is a bearish strategy created when a trader sells a call option and buys a higher strike call option with the same expiration date. Short call spreads are opened for a net credit.
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