Hey Traders,
I get a lot of great questions from you guys, and the other day a reader wrote in with one that I think deserves a deeper dive.
He wanted to know: Why do I talk so much about credit spreads and never about debit spreads?
He even gave me an example — let’s say we’re bullish on a stock that we expect to move from $100 to $105.
Wouldn’t it make sense to use a debit spread instead of a credit spread to play that move?
It’s a fair question, and if you’ve ever wondered the same thing, stick with me because I’m about to explain.
Credit vs. Debit Spreads: What’s the Difference?
First, let’s clear up what these spreads actually are.
A debit spread has you buying a call option at one strike price and selling a call option at a higher-strike price to reduce your cost.
Using the example of us being bullish on a stock going from $100 to $105, you could buy a $100 strike call and sell a $105 strike call.
You’re spending money upfront (that’s where the “debit” part comes from), and you only make money if the stock climbs above your higher strike price — $105 in this case.
A credit spread, on the other hand, would involve selling a put and buying a lower-strike put.
Using the same example, you might sell a $90 strike put and buy an $85 strike put.
Here’s the key difference: you get paid upfront (a “credit”), and you make money as long as the stock stays above your short put strike ($90).
Why I Stick With Credit Spreads
Now, let me tell you why I’m such a fan of credit spreads.
When you trade a credit spread, you’re not just hoping the stock moves in your favor. In fact, the stock can move sideways or even drop a little, and you can still walk away a winner.
Let’s go back to the example of the stock we expect to move from $100 – $105.
If you’re trading a debit spread, you need the stock to actually make that move to make any money. If it doesn’t move — or worse, if it drops — you’re out of luck. It’s a losing trade.
But with a credit spread, all the stock has to do is stay above the $90 strike price put we sold, and you win.
It doesn’t have to soar. It can move sideways or even drop down to $90.01 by expiration and you still win that trade.
And here’s the best part: with a credit spread, you get paid upfront.
That means the premium you collect when you sell the spread goes straight into your account.
It’s like getting a paycheck before you’ve even done the work.
The Odds Game
Remember one of the key points I always talk about:
Trading is all about stacking the odds in your favor.
Credit spreads give you better odds than debit spreads, plain and simple.
When you trade a debit spread, you’re relying on the stock to move in your favor within a certain timeframe. If it doesn’t, you lose.
That’s a lot of pressure to put on one trade.
With a credit spread, you’re betting on something that’s statistically more likely to happen — that the stock won’t drop below your short put strike. ($90 in the example we’ve been using.)
Even if the stock moves sideways or dips slightly, you can still walk away with a profit.
Why Debit Spreads Don’t Stack Up (for me)
Now, I’m not saying debit spreads are worthless.
They have their place, especially if you’re super bullish on a stock and want to limit your upfront costs.
But here’s the thing: they’re not the most forgiving strategy.
If you’re wrong — even just a little bit — you lose. If the stock moves sideways, you lose. If it doesn’t climb high enough, you lose.
Be honest with yourself: How often does the market give you exactly what you’re hoping for?
With credit spreads, I’m not relying on perfection — I’m playing the odds. And the odds of success with a credit spread are just better than with a debit spread.
The Power of Flexibility
Another reason I love credit spreads is their flexibility. They’re not just for bullish trades.
You can use them in bearish markets too by flipping the script and trading a bear call spread.
The concept is the same: you collect a credit upfront, and you profit as long as the stock doesn’t blow through your short strike at expiration.
Let’s say you’ve got a stock trading at $75, and based on your analysis, you believe it’s going to drop down to $70 over the next week.
Instead of buying a speculative put option and hoping for a big move down, you could sell a bear call spread.
Here’s how a bear call spread would work:
- Sell a $75 call – This is your short strike, the price you’re betting the stock will stay below.
- Buy a $77.50 call – This is your long strike, which acts as a safety net to cap your potential losses.
By selling the $75 call and buying the $77.50 call, you create a spread.
Just like the bull put spread, you’re paid upfront for this trade — let’s say you collect $0.50 per share or $50 per contract (since one options contract equals 100 shares). That’s your credit, also known as the premium that you collect.
For this trade to succeed, the stock just needs to stay below $75 by expiration.
That means you don’t have to be right in your analysis. The stock price can drop way down to $70 or below… Or it can stay exactly where it is. Or even move all the way up to $74.99.
As long as it stays below $75 by expiration, you just won that trade.
Why I Stick with Credit Spreads
At the end of the day — for me — trading isn’t about being flashy or chasing home runs
It’s about stacking small, consistent wins over time.
Credit spreads let me do that. They pay me upfront, give me better odds of success, and don’t require the market to move perfectly in my favor.
So the next time you’re thinking about placing a trade, ask yourself: Do I want to rely on the stock moving exactly the way I hope, or do I want to get paid even if it doesn’t?
Stick around here long enough and you’ll be a convert to stacking the odds in your favor.
Trade well,
Jack Carter
P.S. I got together with Lance Ippolito to share our top 5 overnight opportunities for Thanksgiving week! Click here to check it out now!
