Option Vertical Spread
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<< Bull Put Credit Spreads >>Another name for the credit spread is the option vertical spread.
Actually, the term vertical spread is used for both option credit spreads and option debit spread.
A credit spread is an option spread that brings a ‘credit’ into the traders account. The trader sells either a call or a put that resides closer to the money – then purchases a corresponding option further away from the money in order to cover the short option sold.
An example of a credit spread would be…
Sell 1 IBM 105 PUT option (at the 105 strike)
Buy 1 IBM 100 PUT option (at the 100 strike)
A debit spread, on the other hand, pulls a ‘debit’ from the traders account. The trader purchases either a put or a call option that is positioned closer to the money – then sells a corresponding option further away from the money.
A debit spread example is…
Buy 1 IBM 110 CALL option (at the 110 strike)
Sell 1 IBM 115 CALL option (at the 115 strike)
