Credit Spreads (Verticals) on 0DTE

Pair the short option from the previous article with a long option further out-of-the-money. The long leg costs something, but it caps the maximum loss at the strike width minus the credit collected. The result is the most-used short-premium structure for 0DTE retail trading — defined-risk, theta-positive, and far more capital-efficient than naked selling.

This article covers the two basic credit-spread structures (bull put and bear call), the math of credit and loss, how strikes are selected, why the SPX skew makes put-side spreads attractive, and how risk management actually works on a 0DTE credit spread.

The structure

Two variants:

Bull put spread (a.k.a. short put vertical, put credit spread): short the higher-strike put + long the lower-strike put. Profits if the underlying stays above the short put strike. Bullish or neutral view — note that "bull" refers to the directional bias, not the type of option.

Bear call spread (a.k.a. short call vertical, call credit spread): short the lower-strike call + long the higher-strike call. Profits if the underlying stays below the short call strike. Bearish or neutral view.

A concrete example with SPX at 5000:

• Bull put spread: sell the 4995 put for $5, buy the 4985 put for $3. Net credit = $2 (×100 multiplier = $200 per contract).
• Bear call spread: sell the 5005 call for $5, buy the 5015 call for $3. Net credit = $2 ($200 per contract).

Both are "verticals" because the two strikes are at different prices, vertically aligned on a chain at the same expiration.

Bull put spread, visualized

The combined payoff of a bull put spread looks like a clipped version of the naked short put. Below the long-put strike, the long leg fully offsets further losses on the short. The chart shows both legs individually (dashed colored lines) plus the combined position (solid):

Combined P&LShort 4995 putLong 4985 put

Underlying at expiry$5,000

P&L at spot

$200

Max profit (range)

$200

Max loss (range)

-$800

Net credit

$200

Three regions to notice:

• Above 4995: both puts are OTM. The position keeps the full credit. P&L = +$200.
• Between 4985 and 4995: the short put is ITM, the long put is OTM. P&L declines linearly from +$200 down toward the max loss.
• Below 4985: both puts are ITM. Further losses on the short are fully offset by gains on the long. P&L floors at the maximum loss of −$800.

Drag the underlying slider through the range. Below the long strike, the two dashed leg lines diverge symmetrically while the combined line stays flat — that's the defined-risk floor.

Bear call spread, visualized

Mirror image on the call side:

Combined P&LShort 5005 callLong 5015 call

Underlying at expiry$5,000

P&L at spot

$200

Max profit (range)

$200

Max loss (range)

-$800

Net credit

$200

Same shape, opposite direction:

• Below 5005: both calls OTM. Full credit kept. P&L = +$200.
• Between 5005 and 5015: the short call is ITM and growing more so. P&L declines.
• Above 5015: the long call caps further losses. P&L floors at −$800.

The defined-risk character of both structures is identical: a known maximum loss regardless of how far the underlying moves against you.

The math

For any credit spread:

• Max profit = credit collected. Achieved when the underlying ends beyond the short strike in the favorable direction.
• Max loss = (strike width × multiplier) − credit. Achieved when the underlying ends beyond the long strike against you.
• Break-even = short strike ± credit (subtract for put spreads, add for call spreads).

For the bull put example (short 4995 / long 4985, $2 credit):

• Max profit = $2 × 100 = $200 per contract.
• Max loss = ($10 width − $2 credit) × 100 = $800 per contract.
• Break-even = 4995 − 2 = 4993.

Risk-reward at entry: $800 risked to make $200 — 4:1 against. That ratio looks unattractive on its own, but the probability of full max profit is much higher than the probability of full max loss. For a 16-delta short strike, the short put's chance of finishing OTM (full credit collected) is roughly 84%. The math works because of the asymmetric probabilities, not because the dollar ratio looks favorable.

Said another way: every credit spread trades a known loss size for a higher probability of profit. Expected value depends on whether the probability advantage (plus the variance risk premium) outweighs the loss size on the days the trade goes wrong.

Strike selection by delta

Strategy descriptions name credit spreads by the short leg's delta — the convention introduced in Moneyness. Common patterns:

• 16-delta spread — short strike at roughly 1σ OTM. ~84% probability the short ends OTM. Modest credit, high probability of full profit, moderate position size needed for meaningful return.
• 30-delta spread — short strike closer to ATM. More credit collected, lower probability of full profit (~70%), higher gamma exposure on the short.
• 10-delta wings — short strike well OTM. Low credit, very high probability of full profit (~90%), thin reward relative to the risked width.

The long strike is usually expressed as width: "10-wide" (10 SPX points between strikes), "20-wide," "50-wide." Wider spreads collect more credit (the long wing is further OTM, so costs less) but have larger max losses. Narrower spreads collect less credit with smaller max losses. The choice is about capital and per-contract loss tolerance.

Most retail 0DTE strategy descriptions converge on something like "short the 16-delta, 10-wide" as a sensible default — small credit, defined risk, sustainable across many trading days.

The SPX skew makes put-side spreads attractive

The SPX volatility skew makes OTM puts pricier (higher IV) than equidistant OTM calls. The same strike-distance credit spread therefore collects more credit on the put side than on the call side.

For a 1σ OTM short with 10-point wings on SPX, the put-side spread typically collects substantially more credit than the call-side spread at the same nominal moneyness. The exact spread between them depends on the skew steepness on any given day — flatter in calm markets, steeper around stress.

Many 0DTE retail strategies focus on put-side credit spreads for the extra credit. Some traders run both sides simultaneously (an iron condor — covered next in Iron Condors on 0DTE).

Risk management on 0DTE credit spreads

Defined-risk doesn't mean "set and forget." On 0DTE, gamma in the final hours can move a credit spread between max profit and max loss in minutes. Risk management for credit spreads is usually expressed as pre-committed exit rules:

Take profit at a fraction of max profit. Common conventions: close at 50% of credit collected, or 75%. The remaining credit isn't worth the gamma risk of waiting for the last few percentage points.

Stop-loss at a multiple of the credit. If the position moves against you by some multiple of the credit (commonly 1× or 2×), close it. Locks in a smaller loss than max loss while still keeping the defined-risk character.

Time-based exit. Close any open spreads by a fixed time (commonly 3:30pm). Avoids the final-30-minute gamma exposure covered in The Final 30 Minutes.

When credit spreads fit

Credit spreads are the default 0DTE income structure for retail. They fit:

• Modest, repeatable position sizes where a defined max-loss matters for sizing.
• Capital-efficient short-premium exposure — margin requirements are much smaller than naked equivalents.
• Traders without a strong directional view who think the underlying will stay in a range (or above/below a particular level).

They fit less well when:

• The trader has a strong directional view that exceeds the spread's max profit (long options or stock would express the view better).
• IV is genuinely low and the variance risk premium is thin — collecting a small credit on a wide spread isn't worth the gamma exposure.
• The account is large and properly margined enough that naked selling makes capital-efficient sense (a small minority of retail accounts).

Key takeaways

Key takeaways

• A credit spread pairs a short option with a long option further OTM on the same side. Caps the max loss at strike width minus credit.
• Max profit = credit. Max loss = (width × multiplier) − credit. Break-even = short strike ± credit.
• Strike selection is usually by delta (16-delta, 30-delta, 10-delta wings). Width is chosen by capital and per-contract loss tolerance.
• Put-side spreads on SPX collect more credit than equivalent-delta call-side spreads because of the volatility skew — that's compensation for downside tail risk, not free money.
• Defined-risk doesn't mean no management. Pre-commit exit rules (% max profit, % credit stop-loss, time-based) before entering. Final-hour gamma moves are not the time for discretionary decisions.