Trading term

What is Credit spread?

A credit spread sells one option and buys a cheaper one further out, on the same side and expiry. You collect money up front, and the bought option caps how much you can lose.

A put credit spread sells a put and buys a lower-strike put. A call credit spread sells a call and buys a higher-strike call. Either way, the option you sell costs more than the one you buy, so you're paid a credit when you open it.

If the price stays on the right side of the strike you sold, both options expire worthless and you keep the credit. If it goes through both strikes, you lose the gap between them, minus the credit. An iron condor is a put credit spread and a call credit spread at once.

For example

With the S&P 500 at 7,562 in November 2026, selling the December 7,165 put and buying the 7,115 put paid about $5.35 a share, or $535 a contract. The most it could lose was the $50 gap minus that: $44.65 a share, or $4,465.

Go hands-on in Premium

That's Credit spread in theory — it clicks when you read it on a live chart. Practise it hands-on in the TradeWize Premium Options track.

Explore Premium →

Why it matters to you

Credit spreads win often and lose big. The credit is usually a small share of the gap between the strikes, so you need to win most of the time just to break even.

⚠ Reading the win rate as the edge

A spread that wins 80% of the time can still lose money if each loss is four times each win. Compare the credit with the most you can lose before you trade it.

Frequently asked questions

What's the most you can lose on a credit spread?

The gap between the two strikes, minus the credit you collected, times 100 shares a contract. Commissions come on top.

Is a credit spread the same as a vertical spread?

It's one kind. A vertical spread is any two options on the same side and expiry at different strikes. When you're paid to open it, it's a credit spread. When you pay, it's a debit spread.

Read the full guide

DerivativesDo Iron Condors Make Money? 36 Years of S&P 500 Condors, TestedIron condors on the S&P 500 made money 77% of months since 1990, but 4.98% a year against 11.06% for stocks, and less than cash since 2009.9 min read

Related terms

0DTE options0DTE stands for zero days to expiration: an option that expires on the same day it's traded. S&P 500 index options now expire every weekday, so there's a 0DTE contract every trading day, and they make up most of all S&P 500 options volume.Call optionA call option is a contract giving the buyer the right — but not the obligation — to buy an asset at a fixed 'strike' price before a set expiry date. Call buyers are betting the price will rise; their risk is capped at the premium paid, while the potential profit is open-ended.Cash-secured putA cash-secured put is an options strategy where you sell a put option while setting aside enough cash to buy the stock if you're assigned. You collect the premium as income; in exchange, you agree to buy the stock at the strike if it falls there. It's a way to get paid to buy a stock you want at a lower price.Covered callA covered call is an options strategy where you own 100 shares of a stock and sell a call option against them. You collect the premium as income; in exchange, you cap your upside at the strike. It's a popular way to generate income on shares you're happy to hold or sell.
← Back to the full glossary