CHAPTER 11
Credit Spreads
Conceptually, credit spreads are relatively simple and that makes them a favorite of many traders. Although credit spreads are a bit more complex for novice traders than a directional option, they are simpler to manage than debit spreads. Nevertheless, novice traders think in terms of buying first and selling later, so the debit spread is one of the first complex option strategies they gravitate toward. This is one of the reasons you will find more debit spread traders at the novice levels and more credit spread traders at the more advanced end of the learning curve.
It may take a little longer to get accustomed to the way the various parts work together. It's a little bit like driving a car in the United Kingdom versus the United States. They are practically identical, with a few important differences that most drivers will quickly accommodate. When driving in both regions, the brake, accelerator, and steering all work in the same fashion. The big difference is that the driving position is reversed, and, therefore, the side of the road for traffic flow is reversed. In time, a person makes adjustments and should be able to readily move back and forth between the two styles. (If not, the process tends to be somewhat Darwinian!) The same is true for trading debit and credit spreads. There are differences in the direction of the trade (buy versus sell) that dictate how profits are ultimately captured. Those will be evident when we recast the identical trade ...
