Credit spreads are the only way some investors can take advantage of selling puts. Many brokers will not allow less experienced investors to sell puts sell puts; they feel it is too risky as the stock could theoretically drop to $0, and you would have to take the stock at the strike price you sold. That is ridiculous as they will gladly let you buy a stock and ride it to $0. Nonetheless, this is a problem many new investors have. Credit spreads are a good way to get around this problem as your risk of loss is limited to the spread. We like to write $5 spreads where possible, so the maximum risk of loss is $5 minus the credit times the number of spreads written. Another advantage of writing spreads is that you do not tie up as much margin cash. Typically, when you sell a put you are required to maintain 30% margin, i.e., enough cash to cover 30% of the value of the stock if it is put to you at the strike price sold. If you are selling ten contracts of puts on a $200 stock, that means you would be required to keep $60,000 cash as margin. You could write 12 $5 credit spreads with that margin requirement.
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