Credit spreads and the bull put spread

When it comes to the stock market, beginners usually explore and focus on debit spreads and never gives a look towards credit spreads. But when you look at their differences, you can tell that it is easier to make profit with the latter.

A debit spread is an options spread wherein the difference between the short and long option’s premiums would result into a net debit. For credit spread, the value of the short position will always exceed the long positions. This means that you can get maximum profit upfront with credit spreads. All you have to do as a trader is to find ways to keep all or at least a significant portion of the profit.

One of the most popular combinations that you can use with credit spreads is the bull put spread. You can use the bull put spread to produce income or to build wealth.

In this position, you purchase a lower strike put and then sell a higher strike put that has the same expiration date. In this spread, the maximum risk will be limited to the difference in the strike price times 100 minus the net credit. Therefore, you instantly know how much you could lose. The maximum profit that you are able to gain will be determined by the net credit you receive when the market closes  at a position above the short put option and the break even point is positioned higher than the put strike price minus the net credit that you receive.