The four spreads, and one break-even rule
A vertical is two options of the same type and expiry at different strikes. There are four:
| Spread | Legs | Opened for |
|---|---|---|
| Bull call | buy lower, sell higher | debit |
| Bear put | buy higher, sell lower | debit |
| Bear call | sell lower, buy higher | credit |
| Bull put | sell higher, buy lower | credit |
They look like four different things and share one break-even:
calls: break-even = lower strike + net premium
puts: break-even = higher strike − net premium
That holds whether you paid or received the premium, which is why this calculator asks two simple questions — calls or puts, debit or credit — instead of four separate ones.
The cap runs both ways
debit: max loss = premium max profit = width − premium
credit: max profit = premium max loss = width − premium
The width is the distance between the strikes, multiplied by the contract size. A $5-wide spread on 100-share contracts is $500 of total exposure, and everything you can win or lose lives inside it.
This is the whole reason to trade a spread rather than a single option: the outcome is bounded on both ends. A sold call alone has no ceiling on its loss; the same call with a further one bought against it does. You pay for that ceiling by collecting less premium — a smaller credit is not a worse trade, it is a cheaper insurance policy attached to one.
The number the credit hides
A $5-wide credit spread collecting $1.00 sounds like a dollar of income. It risks $4.00 to make it.
That is a 4:1 risk-reward, which needs an 80% win rate just to break even. Sold at 5 delta, such a trade wins roughly 95% of the time and can be genuinely profitable — the arithmetic works. Sold at 30 delta, it does not, and the position feels identical to place.
This is why the break-even win rate sits on the page rather than being left as an exercise. A credit is not income until it is compared against the loss that funds it, and "high probability" without a number attached is not a strategy.
The calculator raises a warning when the credit is under a fifth of the width, because that is the region where one loss erases many wins and the position must be sized accordingly.
What happens between now and expiry
The figures here are the payoff at expiry. Before then, a spread moves less than a single option — the two legs partly cancel each other's theta and vega — which is convenient and occasionally misleading.
A credit spread that is deeply in the money weeks early may show only a fraction of its maximum loss, because time value on the short leg has not yet disappeared. The position is already lost; the screen has not caught up. Judging a spread by its current mark rather than by the strikes is how a manageable loss becomes the maximum one.