What does a "vertical spread" strategy involve?

A vertical spread strategy involves buying and selling options of the same class with different strike prices. This strategy is typically used to limit risk while allowing for potential profit from price movement in the underlying asset. For example, an investor might buy a call option at one strike price and sell another call option at a higher strike price. This creates a spread that takes advantage of the differences in premiums between the two options.

By using different strike prices but maintaining the same expiration date, the investor can reduce overall costs while still positioning themselves to benefit from changes in the underlying asset's price. The strategy provides a defined risk and can help manage volatility in the market, making it a popular choice for traders looking to navigate the complexities of options trading.