DEFINITION A credit spread (also known as a vertical credit spread) is a defined risk options strategy that involves a purchase of one option and a sale of another option in the same underlying and expiration. Traders receive a net credit for entering the position and want the spreads to narrow or expire for profit. REAL-WORLD EXAMPLE In this example, I risked $2,000 to make (before commission) $21 in 4 days. That is a 1% return on the risk in 4 days. RISK MANAGEMENT For defined risk strategies, risk management is reduced to choosing a fraction of the trading capital that you are willing to risk. Depending on how aggressive is your trading style, choose between 1 to 10 % of your capital. In the above example, I should not enter the trade if my capital is less than $20,000. HOW TO CHOOSE WHAT STOCK TO TRADE 1. Liquidity I only trade if a stock has liquid options, which is the options chain has high volume and a narrow bid-ask spread. I the options chain is illiquid, you are going to