Credit Spreads Explained – Passive Income from Trading Options
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Here is a summary of the article in 200 words:
A credit spread is a type of options trading strategy that involves selling an option and buying another option with a higher strike price and same expiration date. This strategy is designed to take advantage of theta decay, which is the decrease in an option’s value over time. There are two types of credit spreads: the bear call spread and the bull put spread. The bear call spread involves selling a call option and buying a call option with a higher strike price, while the bull put spread involves selling a put option and buying a put option with a lower strike price. Both strategies can be used to collect premiums and limit potential losses. The article provides examples of how to implement these strategies using Charles Schwab, a popular online brokerage firm. The author notes that credit spreads are not for beginners and requires a good understanding of options trading and risk management. He also warns against holding large positions of credit spreads and offers tips on how to manage them.
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