Glossary

Debit Spread

By Rohan Fernandes, Founder · Updated 2026-08-21 · Educational reference, not investment advice

A debit spread buys an option and sells a further out-of-the-money one at the same expiration, paying a net debit. Max loss is the debit paid; max profit is the width minus the debit, reached when the stock moves through the short strike.

The short leg subsidizes the long one, lowering both cost and breakeven in exchange for capping the upside. Debit structures fit conditions where options are cheap relative to realized movement (negative NVRP) and a directional thesis exists; the long leg's delta anchors the position and width is commonly set from the expected move, placing the short strike at the forecast rather than beyond it.

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