The "daily Call" From Option Alpha: Options Trading | Stock Options | Stock Trading | Trading Online

Hey everyone. This is Kirk here again at optionalpha.com and welcome back to the daily call. Today, we're going to be talking about the impact of time decay or Theta on credit spreads. Credit spreads, as many of you know, are option strategies where you are buying one contract and selling another contract. Typically, you’re doing a credit spread out of the money. If the stock is trading at $100, you might sell the 105 call options and buy the 106 call options, creating a call credit spread or a bear call spread. Now, the impact of time decay on credit spreads can vary. I say this because it has a lot to do with how far out you are selling options and also, the spread width between your buy and your sell of the option contracts. Now, the thing that people don't account for when they trade credit spreads is that you’ll typically have to hold credit spreads a little bit longer to see profits materialize and depending on how wide you make those spreads might also impact the holding time. We’ve seen this a lot in