Vertical spread
Buying one option and selling another of the same type and expiration at a different strike. Verticals cap both maximum profit and maximum loss at the width of the strikes, making risk fully defined at entry.
The vertical is the workhorse of defined-risk trading: four variants (bull/bear × call/put) cover every directional view with known worst cases. The distance between strikes, minus or plus the premium, bounds everything that can happen.
Verticals also neutralize much of the volatility exposure of a single option, because the long and short legs’ vega largely offset. That makes them cleaner directional instruments than outright options — and the natural next step after lesson one.
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