Hi gang,
Now why do spreads instead of straight calls puts,
By choosing a spread instead of a directional (non-spread) straight call/put, I have reduced two things; my exposure and my financial outlay. Less Risk and still great reward, you also neutralize I.V (volatility) by doing this as well.
Option spreads involve the simultaneous buying and selling of an option contract at two different strike prices, with the same expiry dates. If you buy an option closer to the stock’s current market price and sell another one further away from it, you have invested in a debit spread. It is a net debit because the closer the option strike price is to the underlying’s current market price, the more expensive it is. The one further away is cheaper, hence a net debit.
Now when picking spreads you want to have the price target you think a stock will be at by OPX, then pick the strikes, most strikes are 2.50/5.00/10.00 but the more liquid as in SPY/QQQQ/index options they are in 1.00 increments. So when choosing your strikes think about first where will the stock be by OPX and when choosing the strike difference remember the strike minus debit is your reward. I don’t use 1.00 strikes I like larger ones, which means I need stocks that have a nice movement to them. (Average true range) You don’t need to worry about the I.V on spreads as since you are buying and selling you have mostly have a delta neutral I.V. and of course the closer to the money strike will have a higher delta. One very important thing in spreads is not to go out further than 90 day till OPX (Anna’s rule 45-50) reason is they will move very slowly. You have time value in the short and the long strike, (theta) so it will take so much longer to work. Ideally for me is about 30 days. If you are a swing trader you do not want longer term spreads. they are way too slow to work. Also remember when choosing strikes in big movers as in Google Bidu Apple, you do want the wider strikes as you will see the short leg will work too fast as well.
But first what is the different between the two. In analysis nothing. They are the same, but when you buy you have a right, when you sell you have obligations that is the difference as far as technically they are the same thing. You just flip them upside down.
Sample
QQQQ you buy to open Dec 40 strike = 1.50
QQQQ you sell to open 41 strike for 2.00
DEBIT is .60
Reward is the different between the strikes minus the debit you paid, reward in this = .60
now if you were on the other side of this trade you would be
QQQQ sell to open DEC 40 strike for 2.10
XYX buy to open the 41 strike for 1.50
CREDIT is .60
I did the debit in red, (because when you buy it’s red) when you sell you have green 
I prefer debit spreads to credit spreads, I prefer to have the strike price closer to my favor..
Now there are advantages to doing the credit spread over debit. and that is if you pick the right strikes, you can have your short leg expire at OPX and capture that theta burn (or time)
Example:
QQQQ you sell to open the 40 for 2.10, and buy to open the 41 for 1.60 , if QQQQ is at 41 by OPX, you will have your full credit as the 41 goes out worthless at OPX.
The max loss on the credit spread is .60
The trick here, is to sell option credit spreads with a short time to expiry, thus taking advantage of the “time decay” factor in options. Options have a time decay which falls away exponentially the closer the expiry date approaches, so creating a credit spread with a maximum 4-6 weeks to expiry is where we want to be. Sometimes you can even enter with under 2 weeks to expiry and keep your credit much quicker, but you need to be more certain about the short term direction the share will move to do this, because your time frame is shorter.
Master card Bull call spread, as MA moves about 10% during earnings (not all of the time) here are the spreads I chose to do
MA BUY NOV CALL 230
MA SELL NOV CALL 240
Debit = 2.50
Strike 10 difference minus debit is 2.50 possible reward 7.50
MA BUY NOV PUT 210
MA SELL NOV PUT 190
Debit = 2.80
strike =10 difference minus debit is 7.20
