Debit Spread
2 definitions

An option spread in which there is a net payout of premium.

FK Reading Ease
81.9

FK Grade Level
Elementary School
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  • An options strategy consisting of the buying and selling of options on the same underlying stock, in which the cost of the option purchases is greater than the proceeds of the sale, resulting in a debit at the time of entry into the strategy. Breaking even or profiting from a debit spread requires that the value of the purchased options increase to cover at least the debit.

    Rules: A debit spread consists of either all calls or all puts on the same underlying with the same expiration date.

    Example:      Calls – Long call strike is lower than the short call strike
                        Puts – Short put strike is lower than the long put strike

    FK Reading Ease
    63.6

    FK Grade Level
    High School
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