DEBIT SPREAD BASICS

• Sell to open a further OTM contract, buy to open a more expensive contract (either OTM or ITM) to pay a net debit

• There are vertical, horizontal, and diagonal debit spreads; this podcast is focused on vertical debit spreads, meaning that both the contract we bought to open and sold to open expire on the same day

• Debit spreads are directional trades, meaning you need the stock to move in the direction of your play (call debit spread - up, put debit spread - down)

• Debit spreads experience theta decay and IV crush, so be careful and never play them through earnings

• Debit spreads are best entered off of a reversal, but also in low implied volatility environments