Definition
A debit spread is an options strategy where you buy one option and sell another of the same type with different strikes, paying a net debit. Bull call spreads and bear put spreads are common debit spreads. They reduce cost compared to buying options outright but cap maximum profit.
Formula
Max Profit = Strike Width - Net Debit | Max Loss = Net Debit Paid
Example
Buy a $100 call, sell a $105 call for $2 net debit. Max profit is $300 ($5 width - $2 debit), max loss is $200.
FAQ
What is Debit Spread?
An options spread where you pay a net premium when opening.
How do you calculate Debit Spread?
A common formula for Debit Spread is: Max Profit = Strike Width - Net Debit | Max Loss = Net Debit Paid
Why is Debit Spread important?
Debit Spread helps investors evaluate options and make more informed decisions.