1. The spread between Treasury securities and non-Treasury securities that are identical in all respects except for quality rating.
2. An options strategy where a high premium option is sold and a low premium option is bought on the same underlying security.
Investopedia Says:
1. For instance, the difference between yields on treasuries and those on single A-rated industrial bonds. A company must offer a higher return on their bonds because their credit is worse than the government's.
2. An 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.
Can also be called "credit spread option" or "credit risk option".
Related Links:
Learn why option spreads offer trading opportunities with limited risk and greater versatility. Option Spread Strategies
This trading strategy is an excellent limited-risk strategy that can be used with equity as well as commodity and futures options. Vertical Bull and Bear Credit Spreads
Learn a technique to halt losses when the market moves quickly in an unfavorable direction. Managing Bull Put Spreads With A Simple Adjustment Plan
Writing bull put credit spreads are not only limited in risk, but can profit from a wider range of market directions. Profiting from Time-Value Decay with S&P 500 Options on Futures
This options strategy allows your profits to soar in a sideways market. Take Flight With An Iron Condor
