Beginner's Guide to Trading Debit Spreads

1️⃣ What Is a Debit Spread?

A debit spread is an options strategy where you buy one option and sell another option at the same time, on the same underlying stock, with:

  • The same expiration date (for vertical spreads)
  • Different strike prices

You pay to enter the trade (debit), and your profit/loss is capped.

Bull Call Spread

Expect the stock to go up

Buy a call (lower strike) and sell a call (higher strike)

Bear Put Spread

Expect the stock to go down

Buy a put (higher strike) and sell a put (lower strike)

2️⃣ Why Debit Spreads Instead of Naked Options?

If you've only traded naked calls/puts, here's the difference:

Feature Naked Call/Put Debit Spread
Cost Higher (buying single option) Lower (selling leg offsets cost)
Max Profit Unlimited (call) / Large (put) Capped
Max Loss 100% of premium paid Lower than naked option
Break-even point Further from stock price Closer to stock price
Time Decay (Theta) Works against you Less negative impact
Volatility Sensitivity Higher Lower

3️⃣ How a Debit Spread Works (Example)

Scenario: AAPL is trading at $195, and you think it'll be above $200 by next month.

Bull Call Spread Setup:
  • Buy AAPL $195 call for $5.00
  • Sell AAPL $200 call for $2.50
  • Net Debit (Cost) = $5.00 – $2.50 = $2.50 per share ($250 per contract)
Max Profit:
  • Spread width = $200 – $195 = $5.00
  • Max profit = ($5.00 – $2.50) × 100 = $250
Max Loss:
  • $2.50 × 100 = $250 (your initial cost)

4️⃣ Step-by-Step: How to Place a Debit Spread

  • Bullish? → Bull Call Spread
  • Bearish? → Bear Put Spread
  • Confirm your target price and time frame.

  • Match it to your expected move timeline (e.g., 1-4 weeks out).
  • The expected move will increase as expiration date increases.

Instead of buying one leg, then later selling another, enter the trade as a "spread" order so both legs execute together.

  1. Go to the options chain for your chosen expiration.
  2. Switch the order type from Single to Vertical (or "Spread").
  3. Click Buy on your chosen strike, then Sell on your other strike.
  4. Your platform will automatically show the Net Debit price.
  5. Review max profit/loss before sending the order.

  • Select "Net Debit" as the order type.
  • Enter your desired price (use the mid-price for better fills).
  • Place the order as GTC (Good 'Til Canceled) if you're willing to wait for a better fill.

  • Closing Early: You can sell the trade at any time, but debit spreads hold value well up until expiration (unlike naked options).
  • Stop Loss: It's never a bad idea to cap risk.

5️⃣ Key Benefits for Former Naked Option Traders

  • Lower cost to enter → less capital at risk
  • Defined risk/reward → no surprises
  • More forgiving on direction → you can be right but not perfectly right
  • Less volatility exposure → won't swing as wildly

6️⃣ Common Mistakes to Avoid

  • Legging in separately → Always enter both legs in one order to avoid slippage.
  • Ignoring liquidity → Use liquid stocks/options with tight bid-ask spreads.
  • Not considering fees → Commissions can eat profits if trading small.

7️⃣ Quick Checklist Before Placing a Debit Spread

  • Clear directional bias (bullish or bearish)
  • Chosen strikes and expiration
  • Good liquidity and tight spreads
  • Entering as a spread (both legs at once)
  • Understanding max profit/loss before clicking "buy"

Placing a Debit Spread on Top Beginner Brokers

  • Navigate to the options chain.
  • Choose the same expiration and select the two strike prices.
  • Change order type to "vertical spread" (or "multi-leg").
  • Fidelity auto-calculates the net debit, max profit, and max loss.

  • Open the options chain.
  • Select "Create Spread" or click a call/put pair of strikes.
  • A combined order appears, showing the net cost.
  • Submit as a single spread ticket.

  • Tap into the options chain via mobile or web.
  • Tap one strike to buy, then tap another to sell.
  • Robinhood will detect a spread and display it as a single order with net debit.

  • In TWS: use the trading tab to select "vertical spread."
  • Enter long strike and short strike; TWS computes a single net debit ticket.
  • Easy two-leg entry at once.

  • In desktop or mobile, open options chain and toggle to "Spread" view.
  • Select both strike legs—Webull creates a combined spread ticket showing net debit.
  • One-click trade placement for both legs together.

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