I'll assume you know nothing, so please don't be insulted! We're talking about Vertical Spreads - meaning you simultaneously Buy and Sell 2 different Options which expire in the same month. The price difference between them is referred to as the Spread. It's normally $100, $250, or $500 - but can be wider if you prefer. Bull Call Spread: You're Bullish on the Underlying Stock/ETF. So you're Buying a Call which is more expensive than the Call you're selling, creating a Debit. Bull Put Spread: You're Bullish on the Underlying Stock/ETF. So you're Selling a Put which is more expensive than the Put you're Buying, creating a Credit. Bear Put Spread: You're Bearish on the Underlying Stock/ETF. So you're Buying a Put which is more expensive than the Put you're selling, creating a Debit. Bear Call Spread: You're Bearish on the Underlying Stock/ETF. So you're Selling a Call which is more expensive than the Call you're Buying, creating a Credit.
They're equivalent (zero fwd rate change). Both spreads comprise a box-arbitrage. Please do not listen to this qqq/forexforex clown.
How about apprx: 80 percent of time stocks go up ( index that is) and 20 percent down, but when down it can be a swan event how does this factor or does it not ? thnx
I promised the board I would no longer post, but to elaborate... They're fungible. a 20/25 bull call vert and a 20/25 bull put vert express the same R/R when you assume zero carry/fwd rate in price and var (PNL on rate-variance, peak to trough vol while holding one preferentially). If you buy the call vert and sell the put vert you own the box spread. It's then a bet on rates over the duration of the hold. You're betting on rates on a $5 instrument (strike-differential). Therefore there is no exposure to the remaining greeks (beyond rho). This netting determines equivalence, so choose whichever you prefer. I suppose you're better off for a few pennies in trading the short spread OTM to avoid add'l comms and spreads (let it expire OTM, if correct).
Atticus has a massive ego that is easily bruised. But he craves attention that's why he is back posting to ET.
Debit means you pay for the spread and credit means you get money from the spread. I do not recommend credit spreads for beginners ~