Debit vs Credit Spreads

Vertical spreads combine a long and short option of the same type and expiration. Whether you pay or receive cash up front changes psychology — but risk is still defined by the strikes.

Debit spread

You pay net premium. Classic examples: bull call spread, bear put spread.

• Max loss ≈ net debit paid.
• Max profit ≈ width of strikes − debit.
• Usually needs a favorable move (or enough time/vol help) to win big.

Credit spread

You receive net premium. Classic examples: bull put credit spread, bear call credit spread.

• Max profit ≈ net credit received.
• Max loss ≈ width of strikes − credit.
• Often wins if price stays away from the short strike; still can lose the full width-minus-credit.

Which to choose?

Similar directional views can be expressed either way (e.g. moderately bullish via bull call debit or bull put credit). Differences include probability profile, margin, early assignment risk on short ITM legs, and how IV changes affect the spread. Model both on the calculator with realistic premiums.

Defined risk checklist

• Know the width of the strikes in dollars per share × 100 × contracts.
• Confirm max loss if the spread goes fully against you.
• Plan exits (profit target, stop, or DTE rule) before entry.

Related: Risk management · Iron condor (two credit spreads)