Stacking two options together allows you to define risk and reduce cost while keeping directional exposure.
So far, we have looked at buying and selling single calls and puts.
Now we enter the world of multi-leg strategies, combining two or more options to create custom exposures.
The simplest and most important of these is the vertical spread.
It lets you take a directional position, reduce your cost, and define your risk with precision.
What Is a Vertical Spread
A vertical spread involves buying one option and selling another option of the same type (call or put), with the same expiry but a different strike price.
There are two types:
- Bull Call Spread - buy a call at a lower strike, sell a call at a higher strike
- Bear Put Spread - buy a put at a higher strike, sell a put at a lower strike
Bull Call Spread
You expect the price to rise, but want to reduce your cost.
- Buy a call at Strike A
- Sell a call at Strike B (higher)
- Net cost is reduced because of the premium you collect from the short call
- Max profit is the difference between the strikes minus the net cost
- Max loss is the net premium paid
This is a defined-risk, defined-reward bullish trade.
Bear Put Spread
You expect the price to fall, but want to cap your cost.
- Buy a put at Strike A
- Sell a put at Strike B (lower)
- Net cost is lower than buying a put outright
- Max profit is the difference between the strikes minus the net cost
- Max loss is the premium paid
This is a defined-risk, defined-reward bearish trade.
Why Use Vertical Spreads
- Reduce cost compared to outright long positions
- Cap risk on short positions
- Manage risk/reward in volatile or uncertain markets
- Target a specific price range for maximum profitability
You give up some upside in exchange for better efficiency and clarity.
On Derive
Derive supports multi-leg positions through:
- Simple trade tickets for each leg
- Portfolio margining that reflects offsetting risk
- Full Greek breakdown per subaccount
- Real-time payoff visualizations
You can structure, monitor, and manage vertical spreads with full visibility.
Your Action Today
- Open the options chain on Derive
- Pick two strikes for BTC or ETH with the same expiry
- Build a bull call spread or bear put spread in your head
- Use the trade ticket and Greeks to understand payoff, cost, and exposure
Tomorrow, we will explore how to use credit spreads for yield and probability-based positioning.
Coming tomorrow:
Day 12 – Credit Spreads: Income with Defined Risk
Hasta manana
Cpt
CptRandlelwa
