How Does a Credit Spread Work? Mechanics and Formulas Explained

The Automated Trading Podcast by Advanced AutoTrades

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This episode provides an extensive guide to credit spreads, an options trading strategy designed to generate consistent returns while defining maximum risk upfront. It explains that a credit spread involves selling one option and buying another at a different strike price to collect a net premium, which represents the maximum profit, with the maximum loss determined by the strike width minus the credit received. The hosts break down the credit spread formula for calculating profit, loss, and breakeven points, using practical examples like the SPX Bull Put Spread. Furthermore, the source differentiates the options strategy from the concept of a bond credit spread, which measures the yield difference reflecting default risk, and offers advice on risk management and position sizing for optimal performance. Read the full guide here: https://advancedautotrades.com/how-does-a-credit-spread-work/

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The content on this channel is for educational purposes only. Advanced Autotrades IS NOT AN INVESTMENT ADVISOR OR REGISTERED BROKER. Neither Advanced AutoTrades nor any of its owners or employees is registered as a securities broker-dealer, broker, investment advisor (IA), or IA representative with the U.S. Securities and Exchange Commission or any state securities regulatory.