Vertical Spreads Explained: 2025 Guide for Australian Options Traders

Vertical spreads are quietly revolutionising the way Australian investors approach the options market. With the ASX and global exchanges seeing a surge in options activity in 2025, more traders are seeking smarter, risk-managed strategies. Enter the vertical spread: a powerful yet accessible tool for both bullish and bearish market views, offering built-in risk controls and cost efficiency.

What is a Vertical Spread and Why Are They Popular in 2025?

At its core, a vertical spread is an options strategy involving the purchase and simultaneous sale of two options of the same type (calls or puts), on the same underlying asset and expiration date, but at different strike prices. The result? You gain exposure to price movement without the hefty premium or unlimited risk of a simple outright option position.

• Bullish investors use bull call spreads—buying a call at a lower strike and selling one at a higher strike.
• Bearish investors use bear put spreads—buying a put at a higher strike and selling one at a lower strike.

The growing interest in vertical spreads in 2025 is driven by several trends:

• ASX option volumes are at record highs, as more self-directed investors seek flexible risk tools.
• Regulatory clarity from ASIC and the ATO, including updated tax guidance for options income and capital gains, is making these strategies more accessible.
• Rising volatility due to global economic uncertainty has made capped-risk strategies more appealing.

How Vertical Spreads Work: Real-World Example

Let’s break down a vertical spread using a real-world ASX-listed stock, say, Commonwealth Bank of Australia (CBA), trading at $120 in May 2025. Suppose you believe CBA will rise modestly in the next month, but want to limit your upfront cost and risk. Here’s how a bull call spread might play out:

• Buy 1 CBA June $120 Call for $4.00 per share (contract = $400).
• Sell 1 CBA June $125 Call for $2.10 per share (contract = $210).
• Net cost: $4.00 – $2.10 = $1.90 per share ($190 total).

Your maximum loss is capped at $190 (the net premium paid), no matter how far CBA falls. Your maximum gain is capped at $310 if CBA closes above $125 at expiry (the difference in strikes minus net premium: $5 – $1.90 = $3.10 per share).

This approach appeals to many in 2025 because it offers:

• Defined risk and reward—no open-ended losses.
• Lower cost than buying a standalone call.
• Straightforward profit/loss analysis for clearer decision-making.

Vertical Spreads and 2025 Tax & Regulatory Changes

The Australian Taxation Office (ATO) has provided updated 2025 guidance on reporting options profits and losses, clarifying the treatment of multi-leg strategies like vertical spreads. Key points for Australian investors:

• Capital gains tax (CGT) generally applies to net profits on closed spreads. Losses may be offset against other capital gains.
• Income from writing (selling) options is assessable, but netted against the cost of purchased legs when spreads are closed.
• Record-keeping: Investors must track each leg’s transaction for accurate reporting.

On the regulatory front, ASIC’s 2025 guidelines have reinforced the need for brokers to provide clear risk disclosures and educational support for options strategies, including vertical spreads. Many major ASX brokers now offer improved analytics tools to help clients visualise maximum loss, gain, and breakeven points—making these strategies more accessible for everyday investors.

Is a Vertical Spread Right for You?

Vertical spreads are not just for professional traders. With capped risk, defined reward, and reduced cost, they offer a disciplined way to trade views on shares or indices. However, success depends on careful strike selection, understanding expiry dynamics, and staying updated with tax treatment.

In 2025, more Australians are using vertical spreads to:

• Speculate on modest price moves without taking large directional bets
• Generate income in sideways markets using credit spreads
• Reduce emotional decision-making with clearly defined risk

As always, consider how vertical spreads fit your overall strategy, risk tolerance, and financial goals. With the right approach, they can be a powerful addition to your options toolkit.