How to sell options with protection built in, limit your losses, and generate yield when nothing extreme happens.
If you have ever wanted to earn income from options without taking unlimited risk, this lesson is for you.
Today we cover credit spreads - one of the most popular option selling strategies among professional traders.
It is a way to get paid upfront by selling an option, while protecting yourself with another option at a different strike.
What Is a Credit Spread
A credit spread involves:
- Selling an option with a higher premium
- Buying an option of the same type and expiry, but at a different strike, with a lower premium
The result is a net credit - you receive income up front
There are two main types:
- Bear Call Spread
- Bull Put Spread
Bear Call Spread
- You expect the price to stay below a certain level
- Sell a call at Strike A
- Buy a call at Strike B (higher)
- If the price stays below both strikes, you keep the full premium
- If the price rises above Strike B, your loss is capped at the difference between strikes minus the premium received
This is a risk-defined bearish position.
Bull Put Spread
- You expect the price to stay above a certain level
- Sell a put at Strike A
- Buy a put at Strike B (lower)
- If the price stays above both strikes, you keep the full premium
- If the price falls below Strike B, your loss is capped at the difference between strikes minus the premium received
This is a risk-defined bullish position.
Why Use Credit Spreads
- You earn premium up front
- You define your risk with a protective option
- You can profit in flat, range-bound, or even slightly wrong markets
- You only lose if the move is large enough to cross both strikes
They are useful when implied volatility is high, or when you believe the market is overreacting.
On Derive
Credit spreads on Derive are:
- Easy to build with the options chain and trade tickets
- Margin-efficient thanks to offsetting legs
- Transparent, with full Delta, Theta, and Vega exposure shown before execution
You get a clean payoff diagram and real-time risk data.
Your Action Today
- Pick a strike zone on BTC or ETH where you believe price will stay until expiry
- Build a bear call spread above that zone, or a bull put spread below it
- Use Derive’s trade ticket to calculate net premium, max gain, and max loss
- Watch how the Greeks behave based on your choices
Tomorrow, we begin combining calls and puts together into non-directional strategies - starting with the straddle.
Coming tomorrow:
Day 13 – Straddles: Betting on Volatility Without Taking a Side
Hasta manana
Cpt
CptRandlelwa
