Options Jive

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Why Credit or Debit Spreads?

Options Jive

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

For this segment of Options Jive, Tom and Tony discuss when and how we should use Credit and Debit Spreads.

Tastytrade Credit Spreads:
  • Buy/sell only out-of-the-money call/puts
  • High IV/IVR underlying
  • Collect 1/3 width of the strikes (67% Probability of Profit)
  • Want IV to decrease
  • Manage winners at 50% or more of the max credit
Tastytrade Debit Spreads:
  • Buy ITM put/call, Sell OTM put/call
  • Call and put should be equidistant to stock price, making it an at-the-money debit spread
  • Low IV underlying
  • Collect ½ of the width of the strikes 50% Probability of Profit
Spread Performance:
  • Credit spreads perform considerably better in high IV/IVR
  • Debit spread perform better in Low IV/IVR markets

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