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How to Trade a Vertical Spread

Find and evaluate vertical spread setups, especially around earnings season.

Vertical spreads offer defined risk — you know your maximum loss before entering the trade. This makes them ideal for traders who want to sell premium without the margin requirements of naked options.

Why Spreads?

  • Defined risk: Your max loss is the width between strikes minus the premium received
  • Lower margin: Requires less capital than a cash-secured put or naked call
  • Earnings-friendly: Spreads limit your exposure to gap moves around announcements

Step 1: Open the Spreads Tab

Navigate to Screener and click the Spreads tab. The screener uses a tighter delta range (0.20–0.35) for spreads, focusing on setups that balance premium and probability.

Step 2: Look for Earnings Recommendations

The screener automatically highlights stocks with earnings within 21 days. These are prime candidates for spreads because:

  • Implied volatility is typically inflated before earnings
  • A spread caps your loss if the stock gaps
  • After the announcement, IV drops (vol crush) and your spread often profits

Important: The screener recommends put spreads (bull put spreads) around earnings, not call spreads. Short-call spreads during earnings carry gap risk — if the stock gaps up through both strikes, your loss is maximized.

Step 3: Evaluate the Setup

For each spread, review:

ColumnWhat to Check
Setup ScoreComposite ranking — higher is better
Return %Premium received ÷ max risk (width - premium)
Win RateHistorical probability of profiting on this spread
DTEAim for 20–45 days; shorter if playing earnings directly
DeltaShort leg delta of 0.20–0.35 is the default range

A return of 15–30% on a spread with a 70%+ win rate is a solid setup.

Step 4: Understand the Legs

A vertical spread has two legs:

Bull Put Spread (Credit):

  • Short leg: Sell a put at a higher strike (this is where you collect premium)
  • Long leg: Buy a put at a lower strike (this caps your max loss)

Bear Call Spread (Credit):

  • Short leg: Sell a call at a lower strike
  • Long leg: Buy a call at a higher strike

The difference between strikes (the "width") minus the premium received equals your max loss.

Step 5: Log the Trade

In the Trade Journal:

  1. Click Add Trade
  2. Select Spread as the asset type
  3. Enter the short leg details: symbol, strike, expiration, put/call, price
  4. Enter the long leg details: symbol, strike, expiration, put/call, price
  5. Enter quantity and date
  6. Save

Tiblio calculates max loss automatically based on the strike width and premium.

Tips

  • Width matters: Wider spreads offer more premium but more risk. Start with $5 wide spreads to keep risk manageable.
  • Avoid short-call spreads near earnings: Gap risk on the upside is unlimited up to your long strike. Stick to put spreads.
  • Close early: Consider closing at 50% of max profit. The last 50% takes disproportionately longer to capture.

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