{{Short description|Financial term}} In finance, a '''debit spread''', a.k.a. '''net debit spread''', results when an investor simultaneously buys an option with a higher premium and sells an option with a lower premium. The investor is said to be a net buyer and expects the premiums of the two options (the options spread) to widen.
==Bullish & Bearish Debit Spreads==
Investors want debit spreads to ''widen'' for profit.
A bullish debit spread can be constructed using calls. See bull call spread.
A bearish debit spread can be constructed using puts. See bear put spread.
A bull-bear phase spread can be constructed using near month call & put.
==Breakeven Point== *Breakeven for call spreads = lower strike + net premium *Breakeven for put spreads = higher strike - net premium
==Maximum Potential== The maximum gain and loss potential are the same for call and put debit spreads. Note that ''net debit = difference in premiums''.
===Maximum Gain=== Maximum gain = difference in strike prices - net debit, realized when both options are in-the-money.
===Maximum Loss=== Maximum loss = net debit, realized when both options expire worthless.
==See also== *Credit spread (option)
==References== * {{cite book | last = McMillan| first = Lawrence G. | title = Options as a Strategic Investment | edition = 4th | publisher = New York : New York Institute of Finance | year = 2002 | isbn = 0-7352-0197-8 }}
{{Derivatives market}}
Category:Options (finance) Category:Derivatives (finance)
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