Credit Spread (redirected from Credit spreads)

Credit spread

Applies to derivative products. Difference in the value of two options, when the value of the one sold exceeds the value of the one bought. One sells a "credit spread." Antithesis of a debit spread Related: Quality spread.

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credit spread

The simultaneous sale of one option and purchase of another option that results in a credit to the investor's account. Thus, more funds are received from the sale than are required for the purchase. Compare debit spread.

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Credit Spread

What Does Credit Spread Mean?

(1) The spread between Treasury securities and non-Treasury securities that are identical in all respects except for the quality rating.

(2) An options strategy in which a high-premium option is sold and a low-premium option is bought on the same underlying security.

Investopedia explains Credit Spread

(1) For instance, the yields on Treasuries are lower than the yields on single A-rated industrial bonds because the Treasuries are backed by the full-faith and credit of the government and are rated higher; the Industrial bond is not. (2) An option credit spread example would be buying a Jan 50 call on ABC for $2 and writing a Jan 45 call on ABC for $5. The net amount received (credit) is $3. The investor will profit if the spread narrows. This also can be called a credit spread option or credit risk option.

Related Terms:
• Bond
• Premium
• Treasury Bond—T-Bill
• Yield
• Yield Curve