In options trading, a vertical spread is an

options strategy Option strategies are the simultaneous, and often mixed, buying or selling of one or more Option (finance), options that differ in one or more of the options' variables. Call options, simply known as Calls, give the buyer a right to buy a particul ...

involving buying and selling of multiple options of the same

underlying In finance, a derivative is a contract between a buyer and a seller. The derivative can take various forms, depending on the transaction, but every derivative has the following four elements: # an item (the "underlier") that can or must be bou ...

security, same expiration date, but at different

strike price In finance, the strike price (or exercise price) of an option is a fixed price at which the owner of the option can buy (in the case of a call), or sell (in the case of a put), the underlying security or commodity. The strike price may be set ...

s. They can be created with either all calls or all puts. The term originates from the trading sheets that were used in the

open outcry Open outcry is a method of communication between professionals on a stock exchange or futures exchange, typically on a trading floor. It involves shouting and the use of Hand signaling (stock market), hand signals to transfer information pri ...

pits on which option prices were listed out by expiry date & strike price, thus looking down the sheet (vertical) the trader would see all options of the same maturity. Vertical spreads can sometimes approximate

binary option A binary option is a financial exotic option in which the payoff is either some fixed monetary amount or nothing at all.Breeden, D. T., & Litzenberger, R. H. (1978). "Prices of state-contingent claims implicit in option prices". ''Journal of Busin ...

s, and can be produced using vanilla options. *Bull vertical spread - Bull call spread and bull put spread are bullish vertical spreads constructed using calls and puts respectively. *Bear vertical spread - Bear call spread and bear put spread are bearish vertical spreads constructed using calls and puts respectively.

References

* {{Derivatives market Options (finance) Derivatives (finance)