The Short Vertical Spread (aka Vertical Credit Spread) is the most basic options trading spread. A Short Vertical Call Spread is a bearish/neutral strategy that consists of a Short Call and a Long Call… And a Vertical Put Spread is a bullish/neutral strategy that consists of a Short Put and Long Put.
Use this option spreads strategy to sell option time premium with very little risk and capital. Vertical spreads usually work well when the markets are sideways. They're not a preferred strategy of most of our instructors but it's a strategy you can deploy when you want to create a little more P&L (profit and loss).
Below is the trade Ryan Sizemore put on (click the image to enlarge it) then a video of him explaining it below.
The key take aways:
1. Understanding the price chart first matters: This tells you whether to deploy a Vertical spread or directional option strategy.
2. You have to understand how to structure a trade: Vertical spreads are great but the profit is limited. This makes it harder for smaller accounts to make any significant money.