Debit spread
Definition · Level 2 · Long options & hedges
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A spread opened for a net payment: buy the more valuable option and sell a cheaper one further out of the money to cut the cost. Max loss = the amount paid; max profit = width minus that amount.
Example
The 100/95 put spread for 2.00: risk $200 to make $300.
Where Tradecraft teaches it
Level 2 · Long options & hedges, in the lesson “Debit vertical spreads”: Buy one option, sell a cheaper one further out: a cheaper directional bet with capped profit.
Related terms
- Legging inEntering a multi-leg trade one option at a time instead of as a single package order, hoping for a better price but risking the market moving…
- Long Call SpreadBuy a call and sell a higher-strike call.
- Long Put SpreadBuy a put and sell a lower-strike put. Cheaper downside exposure, capped at the lower strike.
- Net debitThe amount you pay to open a position when the premium you buy exceeds the premium you sell; for long options and debit spreads it is also the…
- Short legThe option you sell inside a spread: it lowers the cost but caps your profit beyond its strike.
- Strike widthThe distance between a spread’s two strikes; for a vertical it is the most the spread can be worth at expiry (× 100 per contract) and, with the net…