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Posted

I have a few basic question about vertical spreads please, just so I am sure I get my terminology and understanding correct

I understand there is a 'credit' spread and a 'debit' spread

As far as I know the above is nothing to do with weather the spread is above or below the market, but weather or not your get a 'credit' (take in a net premium) or you have to pay a 'debit' cost you money to take on the position, is that correct ?

if the above is correct then

assuming the underlying is trading at $100 

if I sold a 'call' credit spread this would mean I sold an option that consisted of for example 

short call at strike $110
long call at strike $120

is the above a correct description of a call credit spread correct ?

then if I 

short put at strike $90
long put at strike $85

the above would represent a put credit spread ?

long call at strike $110
short call at strike $120

the above would represent a call debit spread ?

long put at strike $90
short put at strike $85

the above would represent a put debit spread ?

 

Thanks  very much

CXMelga

 

 

 

 

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