Q&A

Net Credit And Net Debit Strategies

Monday, April 10, 2006, 6:50 AM ET

Q. It seems to me that since 80% of options expire worthless, purchasing options with a net credit makes more sense to me. Is that sound judgment or am I thinking wrong?
A. It is a "myth" you should not rely on! In fact, nobody cares for numerous options with different strikes and expiration dates. Every trader is focused on …

Q. It seems to me that since 80% of options expire worthless, purchasing options with a net credit makes more sense to me.  Is that sound judgment or am I thinking wrong?

A. It is a "myth" you should not rely on! In fact, nobody cares for numerous options with different strikes and expiration dates. Every trader is focused on certain option strikes and expiration months, for which general rules of that kind should not be applied. It all depends on a particular situation, underlying stock price movement, volatility changes, etc. Mathematically there is no significant difference between  net credit and net debit strategies (except the small interest that you earn on your credit balance). The difference is purely psychological and is not so important. In the real situation there is no simple solutions like that. Our mission is to help you put together all factors that determine your success.