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Defending Credit Spreads

Market Measures

Options involve risk and are not suitable for all investors. Please read Characteristics and Risks of Standardized Options before deciding to invest in options.

For this episode of Market Measure, Tom and Tony discuss how to defend difficult credit spreads.

Vertical spreads consist of one long option and one short option on either the Call or Put side. There are 4 types of Vertical Spreads, separated into two categories depending on the Implied Volatility environment: credit spread and debit spread. Credit spreads are usually positioned with a short option just Out-the-Money (OTM) and a long option further OTM. We often find that it is difficult to defend such a strategy.

Through a study done by the Research Team, the boys see what happens when we delta-neutralize the Short Call Spread by adding the Short Put Spread and forming an Iron FLy.


  • SPY: 2005-2017
  • Sold 45 DTE Call Spread (short 30 delta + long 10 delta)
  • Holding trade and managing at 50%
  • Adding ATM Short Put Spread of same width to produce Iron Fly


When we add the short put spread we increase our win rate and P/L. What were once potential losers are now winners, able to turn around and come back into profits. By forming a defensive Iron Fly we are able to decrease total aver risk and increase our average max profit!

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