Where is the breakeven point for a vertical spread typically located?

The breakeven point for a vertical spread is typically located between the two strike prices. This is because a vertical spread involves the simultaneous buying and selling of options with the same expiration date but different strike prices.

To determine the breakeven point of such spreads, one needs to consider the net premium paid or received when establishing the position. For a bull call spread, for example, the breakeven point is found by adding the net premium paid for the spread to the lower strike price. In the case of a bear put spread, the breakeven point is determined by subtracting the net premium received from the higher strike price.

In both situations, the breakeven does not occur at either of the strike prices on their own; rather, it falls within the range created by the two strike prices that define the vertical spread. This understanding is essential for traders to assess their potential profit or loss scenarios and to make informed decisions about their strategy.