Debit Spread

| April 5, 2012 | 0 Comments

debit spreadDebit 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 outflow (debit) from your account it is called a debit spread.  In other words, the options you buy cost more than the options you sell.

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

Examples of a debit spread are Bear Put Spread, Bull Call Spread, Butterfly Spread, Calendar Call Spread, Calendar Put Spread, Collar, Condor Spread, Long Straddle, and Long Strangle.

When entering a spread order with your broker, you identify any transaction that results in an outflow of cash from your account as a debit 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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