Weekly Options – Credit Spread vs Debit Spread

weekly options trading

Weekly Options

There are many different weekly options trading strategies that can be traded beyond just the basic naked call and or put option.

For example the option debit or credit spread.

Weekly Options – Debit Spread

First, a weekly options debit spread is an option spread trade that takes a debit from your trading account – or in other words – it’s a trade that costs you money – one which you pay for.

On the other hand, a weekly options credit spread is a spread trade where the trader is given a credit into his or her account when the trade is put on. Money is added into the account.

Weekly Options – Debit Spread Example

Here is an example of a weekly options debit spread:

Buy 1 XYZ Call option at the 80 strike level.

Sell 1 XYZ call option at the 85 strike level.

In this example the trader is bullish on XYZ – believing that the stock will move up. If it does, the trader could realize the entire difference in the spread – which is five dollars – minus whatever it cost him to put the trade on.

Lets say that it cost in one dollar and fifty cents to place the trade.

If XYZ does move up to – or past – the 85 dollar level by expiration – the trader could realize a profit of 3.50.

The total risk in this trade is whatever it cost the trader to put on – in this example only 1.50. No matter what happens two XYZ that is most that can be lost.

In the next post we’ll get into the weekly options credit spread – as well as what the differences are between these two different spread trades – and the other benefits to trading spreads instead of other strategies using weekly options

weekly options

This entry was posted in CBOE Weeklys, Weekly Options, Weekly Options Trading, Weekly Stock Options and tagged , , , , , , , , , , , , , , , . Bookmark the permalink.