What is a Debit Spread?
The debit spread is one form of an option spread. Within the context of this type of spread, the option that is purchased is of greater value than the premium of the option that is sold. Because of the difference between the purchase and sale, the cash balance or value of the trader account is decreased, resulting in a debit. The hope is that while a debit applies in the short term, the value of the option that is purchased will soon exceed that of the option that was sold and result in a profit from the venture. Sometimes referred to as a net debit spread, the use of a debit spread takes place in just about any type of market environment. When a market is currently exhibiting a bullish posture in general or with a particular stock option, the investor may engage in a debit spread that is based on the use of calls. Should the stock or the general market currently be undergoing a bearish phase, the debit spread may involve the use of puts. A mixture of puts and calls may also be appropr
