Credit spreads deposit money in your account upon entry as opposed to debit spreads, which cost money to enter. In addition, all options lose part of their value as time passes, and credit spreads can benefit from this characteristic. The idea is to sell an option that has the highest probability of expiring worthless and buy a cheaper one to identify and minimize potential losses. If constructed properly, a credit spread will profit from both time decay and a directional move in the underlying.

The following example focuses on a front-month, out-ofthe- money (OTM) credit spread in currency options at the International Securities Exchange (ISE).