Debit spread
Imagine you have some tasty cookies and your best friend wants to trade some of their candy for them. But your friend is worried they might be giving you too much candy, so they ask for a little bit of their candy back just in case. That's kind of like a debit spread.
A debit spread is when you buy a type of investment called an option, but you also sell a different option to help pay for it. The option you buy is a "call" option, which means you're betting that the value of a stock or other investment will go up. The option you sell is a "put" option, which means you're betting that the value will go down.
Because you're buying and selling two different options, you'll pay money for the one you buy and get money for the one you sell - hence, the "debit." It's like your friend giving you some candy, but also asking for some back just to be safe.
Overall, you'll end up spending less money on the options than you would if you just bought the call option by itself. But the trade-off is that your potential profit is limited, because you also sold the put option. So, just like you might not get as much candy as you hoped for if you make a trade with your friend, you also might not make as much money as you hoped for with a debit spread.
A debit spread is when you buy a type of investment called an option, but you also sell a different option to help pay for it. The option you buy is a "call" option, which means you're betting that the value of a stock or other investment will go up. The option you sell is a "put" option, which means you're betting that the value will go down.
Because you're buying and selling two different options, you'll pay money for the one you buy and get money for the one you sell - hence, the "debit." It's like your friend giving you some candy, but also asking for some back just to be safe.
Overall, you'll end up spending less money on the options than you would if you just bought the call option by itself. But the trade-off is that your potential profit is limited, because you also sold the put option. So, just like you might not get as much candy as you hoped for if you make a trade with your friend, you also might not make as much money as you hoped for with a debit spread.