What Is a Common Options Spread Strategy That Involves Selling OTM Options? ⎊ Path

What Is a Common Options Spread Strategy That Involves Selling OTM Options?

A common strategy is the Credit Spread (e.g. a Bear Call Spread or a Bull Put Spread). This involves selling a nearer-the-money OTM option to collect premium and simultaneously buying a further-out-of-the-money option for protection.

This limits the maximum loss and turns the undefined risk of a naked short into a defined risk, while still profiting from time decay.

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Glossar

Credit Spread

Derivation ⎊ The credit spread, within cryptocurrency derivatives, represents the difference in yield or implied volatility between a crypto-asset-linked instrument and a benchmark, typically a stablecoin or a risk-free rate proxy.

Options Spread Strategy

Combination ⎊ An Options Spread Strategy involves the simultaneous purchase and sale of two or more options contracts on the same underlying asset, differing only in strike price or expiration date.