Net credit
Definition · Level 3 · Spreads & short options
Keep reading with Tradecraft
Without a subscription, you can read three definitions every 30 days. Tradecraft explains all 988 terms and strategies, with the lessons that teach them, flashcards that come back before you forget, quizzes and a payoff lab.
The money you receive when you open a spread: what you get for the options you sell minus what you pay for the options you buy. For a credit spread it is the maximum profit.
Example
Sold at 2.50, bought at 1.00 → net credit 1.50 ($150).
Where Tradecraft teaches it
Level 3 · Spreads & short options, in the lesson “Credit spreads: the core math”: Selling one option and buying a cheaper one for protection: credit, max profit, max loss and breakeven.
Related terms
- Credit spreadTwo-option position opened for net money received: sell the more valuable option, buy a cheaper one further out of the money as a hedge.
- Short Call SpreadSell a call and buy a higher-strike call as protection.
- Short Put SpreadSell a put and buy a lower-strike put as protection.
- Short strikeIn a spread, the strike of the option you sold: past it at expiration the position starts giving back its credit, so it is the level traders watch…
- Back-spread danger zoneWhere a back spread loses the most at expiry: the stock sitting at the long strike.
- BodyThe middle strike of a butterfly, short in a long fly: where a long fly earns the most at expiration.