What Does Net Credit Mean In Options Trading ?

A net credit is the result where a trade results in the net collection of premium, resulting in a temporary cash inflow into  the trader’s account. An example of this would be the bull put spread. A bull put spread involves the buying lower strike puts and the simultaneous selling of higher strike puts with the same expiration date. Since the lower strike puts are less expensive in premium than the higher strike puts, an inflow of funds into the trader’s account results. This inflow of funds into the account is the net credit of created by initiating the bull put spread.

What does net credit mean in options trading

Option strategies which result in a net credit :

  • Short call
  • Short put
  • Bull put spread
  • Bear call spread
  • Short straddle
  • Short strangle
  • Ratio call spread. A ratio call spread can result in either a net credit or a net debit.
  • Ratio put spread. A ratio put spread can result in either a net credit or a net debit.
  • Call ratio backspread. A call ratio backspread can result in either a net credit or a net debit.
  • Put ratio backspread. A put ratio backspread can result in either a net credit or a net debit.
  • Long iron butterfly
  • Collar spread. A collar spread can result in either a net credit or a net debit.

Read : What does “net debit” mean in options trading?