Build a practice trade
Pick a name and date, then shape a vertical credit spread.
New here? How a credit spread actually worksshowhide
A credit spread is two options traded at once — you don't buy any shares. You sell one option (cash comes into your account) and buy a cheaper one further away for protection (a little cash goes out). You pocket the difference, called the credit, the moment you open it.
That credit is not free money. By selling, you take on an obligation: if the stock finishes on the wrong side of your strikes, you pay out — but only up to a capped amount you know in advance. Your broker holds that amount as collateral while the trade is open and returns it when you close.
So the goal is simple: collect the credit, and have the stock stay on the safe side of your short strike until expiration. Build one on the left and watch how it plays out.
Put credit spread · SPY
payoff at expiry (modeled)In plain terms: You collect $281 now. Keep it all if SPY is above 535 at expiry; you lose at most $719 if it moves past 525. Breakeven is 532.19.
- Sell 535 put (cash in)
- +$789
- Buy 525 put for protection (cash out)
- −$508
- Cash you receive now
- +$281
- Capital held while open
- $719
No shares are bought, and nothing comes from thin air. You're paid up front for taking on a capped obligation. The capital held is collateral your broker sets aside — you get it back when you close.
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