Vertical Spreads

\*If you trade some version of the Wheel or sell contracts in general this is really the next thing to understand about options. 1. ELI5: A vertical spreads involve buying and selling the same a call OR a put with the same DTE with different strikes as a way to limit the risk of selling a naked option beyond CSP’s and CC’s. So you want to sell a Call or Put because you don’t think it will get assigned, but want to confine risk and don’t want to lay down the capital required to own a 100 shares at the strike you picked. So if you sell a put at 100$ you buy one at 90$, that way you limit the max loss of price movement width of the spread (it doesn’t matter if it moves to 60$ because the purchased contract is gaining as much as the sold one is loosing). Same thing with calls, you just buy higher than you sell (sell at 100$ and buy at 110$). 2. Than you have credit vs debit spreads: You either make money or pay money from opening the two-leg position. So a credit spread is primarily a theta harvesting tool while a debit spread is a directional trade. \-Debit spreads: You are generally buying ATM/ITM and selling your price target (capping it like a CC or CSP). So the profit is the width of the spread - the debit/cost) so you are betting on it moving towards \-Credit Spreads: They can be used in many ways, but bull put and bear call spreads are traditionally theta harvesting tools as you sold the risk for credit and will primarily benefit the more time it is OTM. 3. However strike placement and DTE matter a lot and understanding them really adds versatility. I actually wrote this whole thing cause I was playing around with Claude and thought this info-graphic that got generated was better than I was willing to try and write out about the topic. Not a bad attempt to address the topic on a basic level imo. https://preview.redd.it/estaf9jcxbrg1.png?width=1286&format=png&auto=webp&s=18c5ab47a8587cee21bb7d913d05d1b56013053e