The two structures
| Bull call spread | Bear put spread | |
|---|---|---|
| View | Moderately bullish | Moderately bearish |
| Buy | Lower-strike call | Higher-strike put |
| Sell | Higher-strike call | Lower-strike put |
| Net cash flow | Debit | Debit |
| Maximum loss | Net debit | Net debit |
| Maximum profit | Strike width − net debit | Strike width − net debit |
| Breakeven | Lower strike + net debit | Higher strike − net debit |
All figures are per unit of the underlying. Multiply by the lot size to convert to rupees, and check the current lot size for the contract.
Worked example
Illustrative Nifty bull call spread with the index near 24,500: buy the 24,500 call at 110 and sell the 24,700 call at 40. The net debit is 70 and the strike width is 200.
| Measure | Value | How it is derived |
|---|---|---|
| Net debit | 70 | 110 − 40 |
| Maximum loss | 70 | Net debit, if Nifty finishes at or below 24,500 |
| Maximum profit | 130 | 200 − 70, if Nifty finishes at or above 24,700 |
| Breakeven | 24,570 | 24,500 + 70 |
The mirror-image bear put spread works the same way with puts: buying the higher strike and selling the lower strike gives a net debit, and the breakeven sits below the higher strike by the debit.
Reading a spread price chart
The spread price is the premium of the option you buy minus the premium of the option you sell. A chart of that value through the session shows how the structure reprices as spot moves and time passes.
- Spread premium. Rising when spot moves in the favoured direction, falling as it moves against, and bounded between zero and the strike width at expiry.
- VWAP. The session average of the spread price; a reference for whether the structure is trading rich or cheap to its own session.
- Breakeven and maximum profit. Compare spot with the breakeven to see how far the structure has to travel; the chart's figures use the current net premium.
- Strike width and DTE. A wider spread has a larger maximum profit and a larger debit; days to expiry control how fast the time value is eroding.
Spread prices are built from last traded prices, which can differ from executable quotes, particularly at far-from-the-money strikes. They do not include brokerage, taxes or slippage.
Same expiry or different expiries
A vertical spread uses one expiry for both legs. If you choose different buy and sell expiries the structure becomes a diagonal spread, which adds time-decay and volatility differences between the legs. The tool lets you set the buy and sell expiry independently so you can compare the two.
Limits
- Capped profit. The sold option limits the gain to the strike width minus the debit.
- Mid-trade value is not the expiry payoff. Before expiry the spread's value depends on time and volatility as well as spot.
- Liquidity. Wide bid-ask spreads on either leg raise the true cost above the charted premium.