A vertical put credit spread is the simultaneous purchase of an ITM put and sale of an OTM put. The vertical put debit spread is similar to the vertical call debit spread.
Vertical Call Debit Spread: Sale of an OTM call (greater than current price) and Purchase of ITM call (lower than current price)
Vertical Put Credit Spread: Sale of an OTM put (lower than current price) and Purchase of an ITM put(greater than current price)
There is no hard and fast rule of the two different options needing to be either OTM, ATM or ITM. Depending on the market conditions and your outlook, both options could be OTM or both could be ITM or you could have one ITM and other OTM.
Here are the graphs for the vertical put credit spread:
Just like the previous three vertical strategies, the bull put spread is an alternate name for the vertical put credit spread because profit is maximized when the stock price is ITM (greater than the original market price).
Profit: Maximized at premium collected.
Loss: The loss is equal to the difference to between the ITM and OTM strike prices minus the premium received from the sale of the OTM put.
Once again, the similarities between the vertical call credit spread and the vertical put debit spread are evident in the two graphs.
Eighteen-year old trader, future connoisseur of options.
Follow me on Twitter!