What is a credit spread?
How does a credit spread make money?
A credit spread is a spread in which the option sold is worth more than the one bought, so opening it produces a net credit. That credit is also the maximum gain; maximum loss is the strike width minus the credit. It profits as long as the underlying does not move against the position.
How credit, width and risk fit together
A credit spread is fully described by three numbers on the order ticket: the net credit, the distance between the two strikes, and where the short strike sits relative to the share price. Maximum profit is the credit. Maximum loss is the width minus the credit. The break-even is the short strike moved by the amount of the credit towards the long strike — below the short strike on a put spread, above it on a call spread. All three are fixed the moment the order fills.
What the credit-to-width ratio tells you
Dividing the credit by the width gives a quick reading of the trade-off you accepted. A credit of one third of the width means risking two to make one. Selling the short strike closer to the share price raises that ratio and lowers the chance of keeping the full credit; moving it further out does the reverse. Widening the spread adds credit in absolute terms but adds even more maximum loss. No combination improves both the payout and the odds at once, because the market prices them against each other.
The common misreading
The credit lands in the account on day one, which makes it feel earned. It is not. Until the spread expires worthless or is bought back, the credit is only the most you can keep, and buying the spread back early usually costs part of it. With American-style options the short leg can also be assigned before expiration. That changes what you hold, not the maximum loss, as long as the long leg is still in place.
Worked example
Hypothetical numbers for illustration, not a market quote and not a recommendation.
An example stock trades at 100 €. You sell the 105 € call and buy the 110 € call with the same expiration, collecting a net credit of 1.60 € per share, or 160 € per contract of 100 shares. The spread is 5 € wide.
If the stock closes at or below 105 € at expiration, both calls expire worthless and you keep the 160 €. At or above 110 € you lose the width minus the credit: (5 − 1.60) × 100 = 340 €. The break-even is 105 + 1.60 = 106.60 €, and the credit is 1.60 / 5 = 32 percent of the width. Fees are ignored.
Strategies where the term matters
- Bull Put Spread — Do you want a credit against an obligation - or would you rather pay a debit?
- Bear Call Spread — How far outside the expected move to expiration does the lower strike sit?
- Short Iron Condor — Is the range you expect genuinely narrower than the move the market has priced in?
Calculators for this term
Track it in your journal
Related terms
Every term in one place: the options glossary.
This material is general information about option strategies, written for a general audience. It is not investment advice, not a recommendation, and not financial analysis. Options can lose their entire value, and uncovered positions can lose more than the amount committed. Anything said about tax is general in nature and is no substitute for professional tax advice. Last reviewed: 2026-08-06.