What is debit spread?
Debit range is one of the form of spreading options. In connection with this span type, the purchased greater value has the possibility of a larger value than the premium for the option sold. Due to the difference between purchasing and sales, the cash balance or the value of the merchant account is reduced, leading to a debit. We hope that although the debit is paid in the short term, the value purchased will soon exceed the value of the option that has been sold and will result in a business profit.
Sometimes it is referred to as a pure debit span, to use the debit range in almost any kind of market environment. If the market is currently exposing a bull posture in general or with specific stocks, the investor can participate in a debit range based on calls. Should the stock or general market are currently undergoing bear phase, the debit range may include the use of PITS. A mixture of tickets and calls can also be appropriate ways of using debit propagation.
In any environment, the use of a debit range is a short -term decline in the cash balance of the merchant account. The decision to use this type of strategy has a certain degree of risk. If the security obtained does not start to appreciate the value and eventually bring the return higher than the safety, the range remains and the difference in cash balance is not obtained. Therefore, the strategy relies not only on the price of the option elements, but also on the position with an option that exists between the possibilities purchased and the possibility sold.
Investors, however, usually decide what to sell and what to buy very carefully. This means that research is carried out to determine the most likely expected course of activity for the possibility that the IS -intended IS. If the obtained option is appreciated, while the option sold continues to degrade the value, it can be said that the debit range between them will still be expanded, and the extension of the gap of the possibility of spreading is in favor of the witIP investor.
As with any investment strategy, the success of the debit range is to choose the right ways to buy and sell. If the option that is sold suddenly performs a dramatic comeback, while the obtained option disappears, the investor will basically hit as a result of the transaction. However, if the option purchased dramatically values, while the option sold disappears or reduces value, the investor will gain a great advantage from the transaction.