 |
Definition of 'Credit Spread'
1. The spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
2. An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security.
|
 |
Investopedia explains 'Credit Spread'
1. For instance, the difference between yields on treasuries and those on single A-rated industrial bonds. A company must offer a higher return on their bonds because their credit is worse than the government's.
2. An example would be buying a Jan 50 call on ABC for $2, and writing a Jan 45 call on ABC for $5. The net amount received (credit) is $3. The investor will profit if the spread narrows.
Can also be called "credit spread option" or "credit risk option".
|
-
Want to know how to sell a spread? Learn all about credit spread structure in this chapter of our Options Spreads Tutorial.
Read More »
-
Alert options traders can follow this strategy to improve their chances of success.
Read More »
-
This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options.
Read More »
-
-
Understanding the right way to execute an iron condor can increase potential returns and limit risk.
Read More »
-
Learn how to halt options losses when the market moves quickly in an unfavorable direction.
Read More »
-
Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions.
Read More »
-
We look at the evolution, failure and fallout from the shadow banking system.
Read More »
-
An underused opportunity provided in an SEC rule can enhance returns and lower risk for spread traders.
Read More »
-
This options strategy allows your profits to soar in a sideways market.
Read More »
-
The yield curve is a common bond valuation method. Learn more about it here.
Read More »
|
|
