spreadsLow RiskNeutral / Directional
Credit Spread
Sell a closer option and buy a further OTM option. Collect a net credit upfront.
What is a Credit Spread?
A credit spread involves selling an option closer to the money and buying one further out of the money as protection. You collect a net credit. The spread limits your maximum loss to the difference between strikes minus credit received. There are bull put spreads (sell higher put, buy lower) and bear call spreads (sell lower call, buy higher).
When to use it
Use when you want to collect premium with defined risk. Best in high-IV environments where options are expensive — you collect more credit. Ideal for neutral-to-directional plays with a high probability of profit.
Structure
Sell 1 closer-to-money option + buy 1 further OTM option, same expiration.
Key Metrics
Max Profit
Net credit received × 100.
Max Loss
(Strike difference − credit received) × 100.
Breakeven
Short strike ± credit received (direction depends on put or call spread).
Greeks Profile
Theta: positive. Delta: depends on direction. Vega: negative (high IV hurts buyers, helps sellers).
Tips & Best Practices
- 1Sell 1 standard deviation OTM for ~84% probability of profit.
- 2Manage at 50% of max profit — don't wait for expiration.
- 3Watch for IV crush after events that can close positions profitably.
- 4Credit spreads are the backbone of systematic premium selling.
See it in action
Model a Credit Spread with a real ticker. See the P&L chart, heatmap, and exact breakevens.
Open Credit Spread Calculator →