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Why Credit or Debit Spreads?

Options Jive

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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