Vertical Spreads — Defined-Risk Directional
Bull call, bear put, and the geometry of capped risk and capped reward
A trader believes a $200 stock will rally to $215 over the next 30 days. They consider two ways to express that view. First option: buy the at-the-money $200 call for $7.
22, with a Delta of 0.53 — a position that costs $722 per contract, breaks even at $207.22, and has unlimited upside above the strike.
Second option: buy the same $200 call AND simultaneously sell the $220 call for $1.32 — a vertical spread that costs $722 - $132 = $590 per contract, breaks even at $205.90, has maximum profit of $1,410 if the stock closes at or above $220, and has zero further upside above $220.
The naked-call structure has higher upside per contract; the spread structure has lower cost, lower breakeven, and a defined maximum reward. Which is the right structure? It depends on the trader's specific view, risk tolerance, and capital constraints — but the choice is not random.
That is the opening. Finishing a lesson is where it stops being interesting and starts being useful: the full lesson runs to 9 sections and ends with 6 practice questions. A free account is what opens the rest, and the other 255 lessons in the Academy with it. No card.
What this lesson covers
- 1Geometry of payoff — what the spread actually pays at expiration
- 2Credit spreads and the smile premium — why short-side spreads can be structurally attractive
- 3Vertical Spread Builder
- 4Vertical spread payoffs and Greeks
- 5Bull call spread vs naked long call — Greek-by-Greek comparison ($200 stock, 30 days, 30% IV)
- 6The four vertical configurations and when each is used
- 7The structured-product market — why bull put spreads on SPX are the most-issued options structure in finance
- 8Where to see this on the platform
- 9Summary