Put Credit Spreads are a great way to grow your account and generate a side income. Yes, this even works with a small account. This strategy involves selling a put option with a higher strike price and buying another one at a lower strike price. This is a bullish strategy and used when traders expect the price to rise.  

Put Credit Spreads Explained

The put credit spread is also known as a bear put spread or a short put spread. This strategy involves selling one put and buying another with the same expiration date. The difference in the premiums creates a net credit hence the name “put credit spread.”  

The main goal of the put credit spread strategy is to profit from the difference in the premiums. The maximum profit potential for a put credit spread is the net credit received when the position is opened. The maximum loss potential on the other hand is the difference between the strike prices minus the net credit received.  

Image from OptionsBros

For example, suppose an options trader sells a put option with a strike price of 50 and receives a premium of 1. They then buy a put option with a strike price of 45 for a premium of 0.50. The net credit received from this trade is 0.50 which is the maximum profit potential for the trade.  

If the underlying stock price stays above the 50 strike price at expiration both options will expire worthless. This means the trader will keep the net credit received as profit. If the stock price falls below the 45 strike price the trader will be obligated to buy the stock at the 50 strike price. This means they will experience a loss equal to the difference between the strike prices minus the net credit received.

Understanding The Risks

The put credit spread strategy is popular among options traders because it limits the potential loss and the margin required. Thus making this strategy super capital efficient while also be able to generate consistent returns.

Put credit spreads can be used in a variety of market conditions. However, when you trade put credit spreads in the bullish markets, then that’s how the easy money is made. 

Put Credit Spreads, on average depending on the delta you use, have a 70-80% win rate! However, you can increase that win rate to 90% when you trade in the direction of the trend. This means only putting on a put credit spread if the market is trending up or projected to move higher.

The Best Strategy For Put Credit Spreads

This image is from the results a put credit spread strategy taught in 10% Credit Spreads Inner Circle

Other Important Factors To Consider

One important consideration when trading put credit spreads is the implied volatility of the options being traded. Implied volatility is a measure of the expected price movement of the underlying security and it can have a significant impact on the price of options. When implied volatility is high options premiums tend to be higher as well which can make the put credit spread strategy more profitable. On the other hand when implied volatility is low options premiums tend to be lower making the strategy less profitable.  

Another consideration is the expiration date of the options being traded. Put credit spreads are typically short-term trades with options expiring in a matter of weeks or months. As the expiration date approaches the time value of the options decreases which can impact the profitability of the strategy. Traders should be aware of the expiration dates of the options being traded and be prepared to close out their positions before expiration if necessary.  

If you want to learn step by step how to place credit spreads and have a 90% win rate with them, check out the 10% Credit Spreads Discord here!

Thanks for reading 🙂
Austin Bouley
CEO & Chief Strategy Officer