Vertical Spread

A vertical spread is an options position built from two options of the same type (both calls or both puts) and the same expiration date, but with different strike prices. One option is bought and the other is sold, so the trade combines a long leg and a short leg into a single position.

The name comes from how the strikes are laid out on an options chain: if you list an expiration's strikes in a column, the two you're using sit one above the other, which is why the trade is called "vertical" rather than "horizontal" (different expirations, same strike) or "diagonal" (different strikes and different expirations).

Buying a vertical spread means paying a net cost upfront, and the maximum you can lose is that cost; the maximum you can gain is capped by the gap between the two strikes minus what you paid. Selling a vertical spread means collecting a net credit upfront, with the maximum gain being that credit and the maximum loss capped by the strike gap minus the credit received. Either way, the short leg limits how much the long leg can gain (or lose), which is the whole point: it trades away some unlimited upside or downside in exchange for a lower cost or a defined risk.

The nuance beginners trip on is that "vertical spread" describes the structure, not a directional view by itself — you can build a vertical spread that bets on the price going up, going down, or just needing to clear a specific level, depending on whether you use calls or puts and which strike you buy versus sell. A second, older and now rarely used sense of the term refers to a delta-neutral ratio spread (selling more options than you buy to offset directional exposure); most traders today mean the same-expiration, different-strike structure when they say "vertical spread."