Debit Spread (Options)

When the premium paid for the long leg of a spread is greater than that received from the short leg, the position is referred to as a debit spread and results in funds being withdrawn from the trader's account. Debit spreads are a low risk, low reward strategy. The net debit paid when the position is established is the maximum loss possible.

Debit spreads typically take one of the following forms:

• Bull Call Spreads: if the trader is bullish on the underlying security, they can establish a bull call spread by buying a higher premium at-the-money call option and selling a lower premium out-of-the-money call option on the same underlying security and the same expiration date.

• Bear Put Spread: if the trader is bearish on the underlying security, they can establish a bear put spread by buying a higher premium in-the money put option and selling a lower premium out-of-the-money put option on the same underlying security and the same expiration date.