Vertical Spreads

Vertical Spreads -> simultaneous buying and selling of two similar options

Bull Puts -> Bullish trade, created by selling a put with a higher strike and buying a put with a lower strike. This will create a credit every time whether you are selling in at or out of the money because the contract that you are selling will always be more expensive than the one you are buying. This is the most popular of the four types of vertical spreads. If you are correct about the direction the stock will move often times you can let the contracts expire worthless and not have to use commissions to get out of the trade.

Bull Calls -> Also a bullish trade. The spread is created by purchasing a lower strike price and selling a higher strike price. This will always create a debit spread because the lower call strike will always by more expensive than the one you sell. Unlike the bull put spread if you are correct and have a winning trade you will always have to spend the two commissions to close the position.

Bear Puts -> A bearish trade, created by selling the lower strike put and purchasing a higher strike put. This will always create a debit spread because the put you purchase will always be more expensive than the put you are selling. Compared to a bull put spread you are buying and selling opposite. This means that to close a winning trade you will have to spend two commissions to close out the position.

Bear Calls -> Bearish trade, created by selling the lower more expensive strike price and buying the higher less expensive strike. This will always be a credit spread and as with the bull put spread if you are correct and the underlying goes lower you will have to spend two commissions to close out your winning trade.