Vertical Spread is a popular options trading strategy that involves buying and selling two options of the same type (either both calls or both puts) with the same expiration date but different strike prices. This structured approach helps traders manage risk and define potential profit and loss in advance.

In a bullish vertical spread (also known as a bull call spread), a trader buys a call option at a lower strike price and sells another call option at a higher strike price. This strategy limits both potential profit and loss but benefits when the underlying asset’s price rises moderately. Conversely, a bearish vertical spread (bear put spread) involves buying a put option at a higher strike and selling one at a lower strike, aiming to profit from a moderate price decline.

The main advantage of a vertical spread is its defined risk and reward structure. Unlike naked options positions, which can expose traders to unlimited losses, vertical spreads provide clear boundaries. This makes them suitable for traders who prefer controlled exposure while still participating in directional market movements.

Another key aspect of vertical spreads is their cost efficiency. Since one option leg is sold, it offsets part of the premium paid for the other leg, reducing the overall position cost. However, traders should be aware of factors like implied volatility, time decay (theta), and liquidity, which influence spread pricing and performance.

Vertical spreads are widely used in options trading strategies for hedging, income generation, and limited-risk speculation. Understanding how to select appropriate strike prices, expiration dates, and market conditions is crucial for effective implementation. Investors should also stay informed about SEBI regulations and trade responsibly through registered intermediaries.