A credit spread sells one option and buys a cheaper, further-out option of the same type. You collect the difference in premium up front — the "credit" — and your maximum loss is capped by the long leg.
What you're really betting on
You're betting the underlying stays on the favourable side of a band through the holding window. Time decay works in your favour: as expiry approaches, the premium you sold erodes.
Why defined risk matters
Unlike naked option selling, a spread caps the worst case. You know your maximum loss before you enter — which is exactly the kind of risk profile a disciplined desk prefers.
Options involve significant risk and are not suitable for every investor. Past performance is not indicative of future results.
SEBI RA INH200009351 · Signals are research recommendations from Hariprasad K, SEBI Registered Research Analyst, delivered through WealthX. They are not investment advice tailored to you and do not consider your individual financial situation. There are no guaranteed returns. Past performance is not indicative of future results. Trade at your own discretion — WealthX never places orders or auto-trades your account.