Vertical Spread

A vertical spread buys one option and sells another of the same type and expiration at a different strike, capping both the cost and the payoff. The four flavors — bull call, bear call, bull put, bear put — all reduce to the same geometry: risk and reward are both limited to slices of the distance between the strikes.

Debit spreads pay to enter and profit from movement toward the short strike; credit spreads collect premium and profit if the stock stays away from the strikes. The short leg finances part of the long leg, which mutes the damage from theta and IV crush compared with buying an option outright — the reason spreads dominate around earnings.