Thursday, January 19th, 2017

Index options credit spread trading -video

Index options credit spread trading

Credit spreads are constructed using either calls or puts or a combination of both. There are numerous variations of Credit spreads.

A credit spread is usually a vertical spread. It is an options trading strategy in which you buy an option on a stock or index , either a call or put, and at the same time simultaneously selling an  option at a different strike price. The selling option price must have a higher value thus creating a credit spread for the trader. This type of option selling has limited risk and limited outcome. Since options decay with the passage of time, and if the stock or index does not violates your sold options strike price, a trader keeps the credit received as his income.

A Credit spread allows the trader to receive a credit in his account by providing a margin to carry the spread. Credit spreads are Option selling activity mainly used by professional traders, Hedge Funds, and floor traders. The Spreader has time of his side and time decay ( Theta) erodes the value of options in a given time period, and the options expire worthless, whereby a trader generates income in his accounts.  We will discuss mainly two types of Credit spreads here mainly :

1.  BULL PUT SPREADS 

2.  BEAR CALL SPREADS.

Attached please find a video about Bull Call spreads.

As you have seen from this video, a credit spread becomes an income generation tool. On this site Index Options credit Spreads are used. These credit spreads generate 5%-10% returns in given time period. You can use stocks, mutual funds or T-bills in your account for margin where you are still making money while you earn these returns.

  Index-credit-spread-options-trading

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