Regular Cash Flow with Vertical Credit Spread

Traders in the stock market are now finding solace in using the vertical credit spread. This is a limited risk option trade that involves the simultaneous sale and purchase of two opposed option contracts. According to the Option Club the strategy is designed in order to not be dependent on the directional movement of the underlying stock when it comes to profit and to produce an immediate cash credit to your account.

Profit from a credit spread can be realized if the underlying security moves in a direction that you anticipated, stays at the same price and if the security moves unfavorably to the position. Profit is actually achieved through theta decay. As the options are nearing expiration, time value evaporates which makes the spread less expensive. Letting a credit spread expire without any value will let you keep the full credit without paying any commissions at all once you close out the position.

Credit spreads are used by traders to give them a constant cash flow. Its high probability nature and the fact that it can produce a net credit to your account can make you have a cash flow generation every month by simply using credit spreads.