Vertical credit spreads are popular options trading strategies that generate income while limiting losses. Comparing $1 and $2 wide vertical credit spreads can help determine which approach suits your trading goals. This topic came up in my Credit Spreads Inner Circle Program, so I wanted to write an article on it.

$1 Wide Vertical Credit Spread

A $1 wide spread offers a higher probability of success due to the shorter distance to the higher strike price. However, the collected premium is relatively smaller.

Pros of $1 Wide Spreads:

1. Higher success probability: The narrower spread increases the likelihood of a profitable trade.
2. Lower capital requirement: The smaller spread makes it accessible to traders with limited capital.

Cons of $1 Wide Spreads:

1. Limited profit potential: The smaller spread leads to a lower maximum profit.
2. Limited downside protection: The narrower spread may not provide substantial protection against losses.

$2 Wide Vertical Credit Spread

A $2 wide spread generates a higher upfront premium but increases the chance of the stock reaching the higher strike price.

Pros of $2 Wide Spreads:

1. Higher premium: The wider spread results in a larger potential profit.
2. Greater downside protection: The wider spread offers more protection against losses.

Cons of $2 Wide Spreads:

1. Lower success probability: The wider spread decreases the chances of a profitable trade.
2. Higher capital requirement: The larger spread necessitates more initial capital.

To Conclude

Choose between $1 and $2 wide vertical credit spreads based on risk tolerance, available capital, and market outlook. $1 wide spreads offer higher success probability and lower capital requirements, while $2 wide spreads provide higher premiums and more downside protection. Analyze market conditions and adapt your strategy accordingly for options trading success.

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer