Traders often start by identifying the level of IV, which plays a crucial role in the pricing of options.
While the forecast for the underlying stock price is often the primary consideration, traders shouldn’t overlook the level and direction of implied volatility 3 (IV) when deciding between these two spreads. But many traders struggle to choose one over the other.
There are two types of vertical spreads: credit option spreads 1 and debit option spreads 2. Vertical spreads are among the first strategies many option traders learn because they’re relatively straightforward and typically have defined risk and return possibilities.
A premium below the threshold might be a candidate for a debit option spread, and anything above it might be a candidate for a credit option spread.The implied volatility (IV) percentile measures current IV relative to its high and low values over the past year.
