= Call spread
{title2=$(S_T-K_1)^+-(S_T-K_2)^+$}
A call spread combines a long <European call option> of strike $K_1$ with a short European call of higher strike $K_2>K_1$, on the same underlying <financial asset> and expiry. Its terminal <financial payoff> is
$$
(S_T-K_1)^+-(S_T-K_2)^+=\begin{cases}0,&S_T\leq K_1,\\S_T-K_1,&K_1<S_T<K_2,\\K_2-K_1,&S_T\geq K_2.\end{cases}
$$
The higher-strike call cancels the growth beyond $K_2$, leaving a capped increasing payoff. The opposite long/short convention negates this payoff.
For strikes $100$ and $110$, terminal prices $90,105,120$ give payoffs $0,5,10$. These are payoff calculations before accounting for the initial price of the position. Dividing by $K_2-K_1$ gives a continuous ramp between zero and one, which approaches the indicator of $S_T>K_1$ as the upper strike decreases to the lower one, away from the strike itself. This makes call spreads useful mathematical building blocks for approximating digital payoffs.
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