Build bull and bear debit spreads

Identifier: C4T4L2 | Revision: 2026-10-26 | Planned study: 10–15 minutes, excluding extended practice.

Decision and objectives

Choose whether the method addresses this lesson’s task before placing an order. Objectives: 1. Construct matched debit-spread legs. 2. Calculate capped expiry results. 3. Distinguish a spread loss bound from interim cash needs.

Prerequisite: C4T4L1.

All numbers, quotes, contract terms and dates in the case are hypothetical teaching assumptions, not a listed series or offer. Unless varied below, options are European, expire together in 90 calendar days, are cash settled in TRY, and use 100 underlying units per contract. Premiums are TRY per underlying unit, paid at entry; signed quantities identify long (+) and short (−) legs. Assume no distributions and zero financing for the isolated payoff, no holiday adjustment, and final cash on the next business day. Actual tax is excluded, not assumed zero.

Mechanics

A debit spread pays more for the purchased option than it receives for the sold option. A bull call spread buys a lower-strike call and sells a higher-strike call; a bear put spread buys a higher-strike put and sells a lower-strike put. Equal quantities, deliverables and expiries are essential to the simple bounded payoff. The sold leg finances part of the purchase by giving up part of the favorable tail. A lower net premium does not create an unqualified improvement over the long option.

Price and return drivers

For a bull call spread, payoff = max(S−low K,0) −max(S−high K,0). The maximum is the strike width. Net maximum profit = width × units −debit −costs; maximum loss = debit +costs. For a bear put spread reverse the underlying direction with high-strike long put and low-strike short put. Breakeven includes costs per underlying unit. These terminal bounds assume that all legs remain matched and obligations are completed under their stated settlement rules.

Worked case

Synthetic bull: +1 callK100 premium8; −1 callK110 premium3, multiplier100. Debit=500, fixed total charges40; maximum profit1000−500−40=460, maximum loss540, breakeven105.40. Separate bear: +1 putK100 premium7; −1 putK90 premium3. Debit400, charges40; maximum profit560, loss440, breakeven95.60.

The bull’s gain stops above110 and the bear’s below90; inspect the combined legs instead of inferring direction from premium size.

Adverse case

Before expiry atS105, supplied executable closing bid for the bull package is6.20 per unit, giving620−500−40=80. The expiry result atS105 is−40, so a single expiry diagram cannot price an early exit. If only the short leg fills at entry and the long is not purchased, the bounded-spread description is false: a naked short call remains. Hypothetical margin can rise or physical-delivery cash can be needed even where the intended terminal difference is bounded. American-style alternatives add early-assignment mismatches, unlike the declared European model.

Practical use

Verify both same-expiry deliverables and executable size. Prefer an actual permitted package route when available; otherwise budget the risk between separate fills.

For any actual domestic implementation, verify the exact issue/contract, authorized intermediary, account permission and executable size. Include spread, commissions, passed-through fees, funding/borrow, custody and exercise/exit costs without double-counting embedded charges. Recheck income year, residency/status, issue/acquisition dates and effective tax law; all case results remain before actual tax.

Decision boundaries

Use a debit spread when a capped target is consistent with the objective and its lower premium has a useful benefit. Buying more spreads because each costs less can undo the loss-budget benefit. Check package depth or control sequential orders without leaving unsupported short exposure. Decline if matched deliverables or expiry cannot be confirmed. Retain a standalone long option if preserving the full favorable tail matters more than reducing premium.

Practice and references

Exercise: +1 putK120 at9; −1 putK105 at4; multiplier100; total charges30. Solution: Debit500. Maximum payoff1500, maximum profit970, maximum loss530, breakeven114.70. AtS110 payoff1000 and net470. AtS130 both puts expire without payment and loss is530.

Takeaway: Debit spreads trade a lower premium for capped favorable payoff; matched legs are essential to their terminal bound. Reference links: product card, formula; glossary: Debit spread; Bull call spread; Bear put spread. Next: C4T4L3. Topic test.

Sources: Borsa Istanbul: Options (retrieved 2026-10-26; General information and basic concepts). Borsa Istanbul: Settlement Method (retrieved 2026-10-26; Settlement by contract family). Options Industry Council: All Strategies (retrieved 2026-10-26; Strategy descriptions). GIB: Provisional Article67 Guide for Individuals (retrieved 2026-10-26; Sections1,3–9 and19; publication introduction). Revision 2026-10-26; recheck changing terms before publication.

Shared reference guide