Debit and Debit Spread Option Trades

Debit spread trades, or net debit option trades, are simply those option trading strategies that result in a net debit when setting up. Unlike credit spreads where the trader receives an initial net cash payment when opening the trade, a debit trade costs something upfront.

If the trade works out as planned, the value of that position increases so that when the trader closes the position, he or she will receive more than what the trade originally cost to set up.

If you understand plain vanilla stock investing - buy low, sell higher - than you've got the basic principle of debit trades.

Spreads

Spreads are simply option trades that involve more than one option - whether at different strikes, different expiration dates, or even different type (calls vs. puts).

For more details, check out the All About Option Spreads page.

Finally, not all debit or net debit trades are technically spreads. Not that the precise terminology is crucial - the important distinction is that these trades cost money to set up and they succeed when they increase in value, whereas net credit spreads succeed when they decrease in value.

Net Debit Strategies

The strategies in order of increasing complexity . . .

Long Call
Long Put
Option Straddle
Option Strangle
Bull Call Spread
Bear Put Spread
Butterfly Option


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