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Glossary of Terms and Strategies for Options Trading
Complete Options Glossary: Strategies, Terms, Greeks, and Option Selling Techniques. Clear, concise, and suitable for both beginners and advanced traders. Learn to trade options effectively.
Strategie
Beginner, Income, Speculation
Put Credit Spread
A strategy that sells a higher-strike put and buys a lower-strike put to receive net credit.
Detail
Put Credit Spread is a bullish-to-neutral strategy involving the sale of a higher-strike put and the purchase of a lower-strike put, both with the same expiration. It generates a net credit which is the max profit.
The position is profitable if the underlying stays above the short strike. If the price falls below the long strike, the trader suffers max loss (strike difference – credit). Breakeven is the short strike minus the credit received. The strategy benefits from time decay and falling IV. Often used standalone or as part of an Iron Condor.
Optimal conditions
Used when expecting price stability or a rise, in high IV environments, to benefit from time decay.
Max profit
Limited – equal to the credit received.
Max loss
Limited – strike difference minus credit.
Risks
Assignment risk if the underlying drops below the short put strike near expiration. Avoid during volatile drops.
Greeks
Delta: positive, Theta: positive, Vega: negative.
Variations
Bull Put Spread, lower half of Iron Condor.
Usage example
Sell 100 put, buy 90 put. Max profit above 100, max loss below 90.
DTE
Typically 20–45 days.
IV (implied volatility)
Best used in high IV and stable markets.
Premium
Credit received.
Margin
Margin equals max loss (strike diff – credit).
Notes
Popular income strategy with clearly defined risk.
Tags
put credit spread, bull put spread, option income, defined risk, neutral strategy
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