A credit spread is a type of options trading strategy where you simultaneously sell one option and buy another with the same expiration date. The key to a credit spread is that you receive more premium from selling the option than you pay for buying the other, resulting in a net credit. While credit spreads are considered directional trades, they can still be profitable even if the underlying asset moves against your prediction. The potential profit and loss depend on how you set up the spread. To create a bullish credit spread, you’ll use put options. This is often referred to as a PCS (Put Credit Spread). How it works: You sell a put option with a higher strike price and buy a put option with a lower strike price. Profit: You make the maximum profit if the underlying asset’s price stays above the sold put’s strike price at expiration. Loss: Your maximum loss is limited to the difference between the strike prices minus the credit received and you will realize this if the unerlying asset’s price stays below the bought put’s strike. Bearish Credit Spread: To create a bearish credit spread, you’ll use call options. This is often referred to as a CCS (Call Credit Spread). How it works: You sell a call option with a lower strike price and buy a call option with a higher strike price. Profit: You make a profit if the underlying asset’s price stays below the sold call’s strike price at expiration. Loss: Your maximum loss is limited to the difference between the strike prices minus the credit received.

Key Considerations Liquidity: Choose options with high open interest and narrow bid-ask spreads for better execution.

Pin Risk: Avoid holding credit spreads close to expiration to reduce the risk of early assignment.

Delta: Use delta as a quick estimate of the probability of the option expiring in t