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A credit spread has two different meanings, one referring to bonds, the other to options.

With regard to bonds, credit spread is the difference in yield between two different bonds that are the same in all aspects except for the credit rating.  For instance, an ABC Corporation bond has a 10-year maturity, and is priced on the market to yield 12%.  A corresponding 10-year Treasury bill has an 8% yield.  The ABC bond is said to have a 400 basis point credit spread from the Treasury security.

In options, credit spread is where a trader simultaneously buys and sells (writes) option positions on the same underlying asset with the same expiration dates.  The only difference in the two positions is the strike price.  Because the amount received from the short leg of the spread is greater that what is paid for the longer leg, there is an immediate net credit to the trader’s account.

There are different credit spread strategies depending on whether the trader is bullish or bearish on the underlying security, or on the underlying asset’s volatility.  These trading strategies have names such as short butterfly, short condor, iron condor and iron butterfly. 

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