A multi-leg trade where you take in more than you pay out; cash arrives up front and the risk is what can still be lost beyond it.
The credit is the most you can make, not the most you can lose. In a defined-risk credit structure the risk is spread-width minus credit; in an undefined one, such as a naked-put, it is far larger.
Credit structures are short extrinsic-value, so theta works for you and rising implied-volatility works against you. They typically win often and lose big, which is the opposite shape from debit trades.
Example: sell the XYZ $45 put at $1.30 and buy the $42.50 put at $0.55 for a $0.75 net credit, $75 per spread. Maximum profit is $75 if XYZ stays above $45. Maximum loss is $250 minus $75 = $175 below $42.50 — a 2.3-to-1 risk against a trade that wins most of the time.
Original diagrams for the ideas on this page. Illustrative, not real market data.
The bid-ask spread. Buy orders sit below, sell orders above, and the gap between the best bid (50.01) and best ask (50.04) is the spread you pay to cross. Bar length shows the size resting at each price.
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