Credit Spread

| April 3, 2012 | 0 Comments

cash inflowCredit spread is a term used to describe the direction cash flows when executing a spread trade.

When the simultaneous buying and selling of options results in a cash inflow (credit) to your account, it is a called a credit spread.  In other words, the options you buy cost less than the options you sell.

There are many option strategies that can be considered a credit spread.  The key is:  1) Concurrently buying and selling two or more different options and 2) An inflow of money at the time the position is opened.

Examples of a credit spread are Bear Call Spread, Bull Put Spread, Iron Butterfly Spread, Iron Condor Spread, Short Strangle, Short Straddle, and Vertical Spreads. When entering a spread order with your broker, you identify any transaction that results in an inflow of cash to your account as a credit spread.

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Category: Options Trading Strategies

About the Author ()

A former banking executive, Corey Williams is the Chief Options Strategist and co-editor of our well-known daily newsletter, Options Trading Research. Corey’s extensive experience with options goes all the way back to his days in corporate finance. It was this decade in banking where Corey discovered the most important skill an options trader can have– the ability to analyze a company or sector to determine its likely future direction. And now he’s brought this background, experience and love of options to Options Trading Research, the unique daily e-letter devoted exclusively to helping individual investors profit from the very lucrative options market.
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