Option Spreads: The Strategy

Posted on February 23rd, 2010 admin

The option spreads are divided into two categories debit spreads and credit spreads. These refer to the cash positions that can result from this transaction, positive (credit) or negative (debit) cash flow.

Debit Spreads

A debit spread is when the trade is set up for a cost and you have to pay a certain premium. If you are paying more for the bought option than receiving for the sold option it is a negative cash flow position. The strategies that are debit spreads are Bull Call Spread and Bear Put Spread.

Credit Spreads

A credit spread is when you initially receive a premium. If you are receiving more for the sold option than paying for the bought option it is a positive cash flow position. The strategies that are credit spreads are Bull Put Spread and Bear Call Spread.

A bull spread is profitable when the share price increases while a bear spread is profitable when the share price decreases.


To receive ASX Option Recommendations or to learn more about Bull Call Spread, Bull Put Spread, Bear Call Spread, Bear Put Spread Strategies please request the Option Spreads eBook by contacting us on 07 5504 2244 or info@totaloptions.com.au

Leave a Reply