When doing a vertical ( or any ) option spread trade how can you do it with options without having to actually buy 100 shares of stock? Is it possible just by buying 1 option contract? How is this done?
By definition, an option spread is created by the simultaneous purchase and sale of options of the same class on the same underlying security but with different strike prices and/or expiration dates. Therefore there is no purchase or sale of shares unless it is being done synthetically which is beyond the scope of this question.
This is an example of a spread trade. It illustrates the process, buying one strike and selling another to form the 'spread'. I happened to execute 10 contracts on each side, for a total debit of $1000 (plus about $30 in commissions). One spread would have required the purchase of one contract and sale of another.
The purpose for such a trade is leverage. The stock was trading at $99 when this trade was executed. A 50% return on the stock would (and did) result in a 900% return on the option trade. To be clear, breakeven would require a 40% stock increase. Less than that, and the amount spent is lost.
Disclaimer - this type of trade is not "investing" but rather, "gambling". There are other option trades that are not so speculative, but they don't include this level of leverage.
When doing a vertical ( or any ) option spread trade how can you do it with options without having to actually buy 100 shares of stock?
A single options contract typically relates to 100 shares of stock. This is called the multiplier. For example, the IBM $135 Call Option is currently priced at around $0.88 cents. If you were to buy 1 contract, it would cost you $88.00. Only when you exercised it, would you have to buy 100 shares of the stock at $135.00 per share.
A spread trade by definition refers to two or more option contracts.
However some exchanges treat them as a single security - you can put in an order for a certain type of spread, and they may provide market data and prices. Sometimes the exchanges (or your broker) will combine the prices of the different legs available on their platforms to come up with the price of the spread.
Is it possible just by buying 1 option contract? How is this done?
Per the above, a spread requires at least 2 option contracts, but can sometimes be done as a single order or trade. This will depend on your broker's platform. There is very little practical difference in buying a spread as a pair of single option contracts, or as a spread order. The advantage with the spread order is you get both contracts or none at all, whereas with individual orders you might get one and not the other (and have to buy the one you missed at a higher price than you originally expected, etc.)