The starter spread. Bullish view with defined risk, defined reward, reduced cost. Deep dive: four vertical spreads compared, credit vs debit choice, ranking method, adjustment library, IV regime tilts.
Bullish on Nifty. ATM call costs ₹200. Solution: buy the ATM call AND sell a higher-strike call. Smaller debit, capped upside, better return-on-risk if underlying moves as expected.
Structure: Buy lower-strike call + Sell higher-strike call, same expiry. Net debit.
Below the lower strike: max loss = debit paid. Above the upper strike: max profit = spread width − debit. The plateau shape is what “defined risk” looks like.
Nifty at ₹25,000. Expect rise to 25,300 by Tuesday.
Max profit ₹7,150 (Nifty ≥ 25,200), max loss ₹5,850 (Nifty ≤ 25,000), break-even 25,090, R/R 1:1.22.
Net debit = Long premium − Short premium (per share)
Max profit = (Short − Long strike) × Lot − Debit × Lot
Max loss = Total debit paid
Break-even = Long strike + Debit per share
| Long call | Bull call spread | |
|---|---|---|
| Cost | ₹15,000 | ₹6,750 |
| Break-even | 25,200 | 25,090 |
| Max profit | Unlimited | ₹8,250 |
| Max loss | ₹15,000 | ₹6,750 |
| P(profit) | Lower | Higher |
| Theta impact | Full pain | Reduced |
Trade-off: cap upside. If Nifty rockets to 26,000, spread makes ₹8,250 while naked makes ₹67,500. But if your view is 25,300 max, capping at 25,200 costs nothing.
Use: moderate bullish view with target, high IV, defined risk preferred, time decay is a concern.
Skip: extremely bullish (long call better), very short expiry, low IV.
ROR = Max profit ÷ Max loss
Probability of profit ≈ Delta of long leg
EV = (P × Max profit) − ((1 − P) × Max loss)
Rule: avoid spreads where max profit < max loss.
| Spread | Debit | Max prof | Max loss | R/R | P(prof) | EV |
|---|---|---|---|---|---|---|
| 25k/25.1k | 4,500 | 3,000 | 4,500 | 0.67:1 | 55% | +₹1,625 |
| 25k/25.2k | 6,750 | 8,250 | 6,750 | 1.22:1 | 40% | +₹1,255 |
| 25k/25.4k | 9,750 | 20,250 | 9,750 | 2.08:1 | 20% | +₹1,725 |
EV highest on wide but probability lowest — most trades lose. Retail prefers balanced middle for consistency.
| Width | Nifty range | Best for |
|---|---|---|
| Narrow (50-100) | 0.2-0.4% | Tight target |
| Balanced (150-250) | 0.6-1.0% | Retail default |
| Wide (300-500) | 1.2-2.0% | Longshot big move |
Same bullish view built with puts as a CREDIT spread.
Nifty at 25,000.
Max profit ₹2,925 (above 24,700). Max loss (200 − 45) × 65 = ₹10,075 (below 24,500). Break-even 24,655. R/R 3.4:1 against.
| Bull call (debit) | Bull put (credit) | |
|---|---|---|
| Cash upfront | Pay | Collect |
| Best case | Rally past short | Stays flat or rises |
| Time decay | Slight negative | Positive |
| Best IV | LOW | HIGH |
| P(profit) | 35-45% | 65-75% |
| R/R | 1:1.5 favorable | 3:1 against |
Rule: IV Rank < 30 → debit (bull call). IV Rank > 60 → credit (bull put). 30-60 → either.
| Bullish | Bearish | |
|---|---|---|
| Debit | Bull CALL ✓ | Bear PUT |
| Credit | Bull PUT | Bear CALL |
Master these four and any directional view is expressible with defined risk, IV-optimized.
Symptom: 3 days into 7-day spread; Nifty at 25,250 (past 25,200 short); ~90% max profit.
Symptom: 2 days left; Nifty at 25,100; spread worth ₹4,000 vs ₹6,750 cost.
Symptom: Nifty at 24,800; spread worth ~₹1,500.
For monthly spreads: close/roll at 21 days regardless of P&L. Gamma accelerates; theta meaningful; avoid pin risk. Weeklies: 3-DTE proportional.
At 50-75% max profit, close. Last 25% is disproportionately expensive; any adverse move wipes gain.
| Strategy | Cost | Max profit | Max loss | Best for |
|---|---|---|---|---|
| Long call | High | Unlimited | Full premium | Aggressive bull |
| Bull call spread | Moderate | Capped | Debit | Balanced bull |
| Bull put spread | Zero (credit) | Small | Larger | High-IV bull + theta |
| Long call ratio | Low/credit | Peak at short | Unlimited past peak | Specific target |
Max risk (2% rule) = Account × 0.02 Max lots = Max risk ÷ (Debit × Lot)
Example: ₹5L account, 2% = ₹10K. Debit ₹90/share, lot 65 → max loss ₹5,850/lot. Max lots: 1.71 → 1 lot. Sensex spreads (lot 20) allow more lots per capital.