Definition of Vertical Spread

Vertical spread is the simultaneous purchase and sale of two calls or two puts on the same underlying security that differ only in strike price.

Applying "Vertical Spread" to Securities Exams:

A vertical spread is also known as a price spread. An investor will simultaneously purchase one option and sell another option of the same type and expiration. The only term of the options that differ are the strike prices. A bullish investor will purchase call spreads and sell put spreads. A bearish investor will purchase put spreads and sell call spreads.

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