Are you wondering which is better: option trades that result in a credit or trades that result in a debit? Simply put, you’re asking whether you should choose a credit spread or debit spread strategy. Let’s consider both options in more detail.
A credit spread (also called a net credit spread) involves the investor selling one option then buying another option. The second option is in the same class and also shares the same expiry date. However, there are different strike prices between the two options. In this instance, the new investor gets a net credit for entering this position. He is looking forward to the spreads either narrowing or expiring in order to get a profit. A credit spread is basically a conservative strategy in investment. It is designed to earn a moderate level of income while also limiting your potential loss. In this circumstance, you are buying and selling [...]