A credit spread is a two-option strategy that results in an initial credit to the trader. It can be used in both a bullish and bearish market depending on the configuration.
Symbol: AAL Current Price: $44.91 Short Option Write (Sell) Option: 1st June $45.00 Put Price per option: $ 0.77 Contracts #6 x 100 (600 shares) Total cost: $77 Long Option Buy Option: 1st June $45.00 Put Price per option: 0.11 Contracts: #6 x 100 Total cost: $66 Entry cost $398 (next credit, in account now) Maximum risk: 1104 at a price of $42.50 at expiry Maximum return: $396 at a price of $45 or higher Breakevens at expiry: $44.33