Credit Spread
A two-leg, defined-risk structure: sell a nearer option and buy a further one for protection, collecting a net credit — the workhorse of high-probability premium selling.
A Credit Spread is a two-leg, defined-risk options structure: you sell a nearer option and buy a further out-of-the-money option of the same type and expiration for protection. You collect a net credit, which is your maximum profit; your maximum loss is the width between the strikes minus that credit.
Two forms:
- ●Put Credit Spread (bullish / neutral): sell a higher-strike Put, buy a lower-strike Put. Profits if SPX stays above the short Put.
- ●Call Credit Spread (bearish / neutral): sell a lower-strike Call, buy a higher-strike Call. Profits if SPX stays below the short Call.
Why it is the workhorse of the high-probability playbook:
- ●Defined risk — you always know your worst case up front.
- ●Positive expectancy from the Volatility Risk Premium — you are selling overpriced options.
- ●At 10–20 delta short strikes you enter around 65–70%+ probability of profit. The 10–15 delta zone wins more often; pushing out to 30 delta drops the win rate toward ~34%.
Management: take profit at 50% of the credit, exit by 21 DTE on multi-day trades, and stop out near 200% of the credit collected.
How SPXXL helps: the expected-move rails place your short strike at a chosen sigma distance, and session classification tells you which side (or both) is safe to sell.
Important: Options trading involves substantial risk of loss and is not suitable for all investors. This definition is educational and uses SPX for illustration — it is not financial advice.
Related Terms
A four-leg credit spread that profits when price stays within a defined range — ideal for Balanced Day and Volatility Compression sessions.
A two-leg directional options strategy where you buy one option and sell another at a different strike — same type, same expiration — to lower your cost, define your risk, and reduce time decay.
The estimated chance a trade is profitable at expiration — the most useful single number for comparing premium-selling trades before entry.
The persistent gap between implied volatility and realized volatility — the structural reason option sellers are, on average, systematically overpaid.
The mechanical exit rules — take profit at 50% of max, exit by 21 DTE, hard stop near 200% — that lift short-premium win rates from ~65% to ~80%+.
An option Greek measuring price sensitivity to a 1-point move in the underlying — and a fast approximation of the probability of finishing in the money.