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Credit Spread Math?

Anything related to investing, including crypto

EPerceptions

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For those of you familiar with credit spreads, I could use a little help. I can't seem to quite get my head around figuring profit and loss.

Do you base your figures on the amount of risk/collateral, or the total spread? I *think* if I look at it like investing in inventory, I'd base everything on what I put up. Example:

$100 spread
$32 credit
$68 risk

I closed it for $60 to mitigate some of the loss.

So if I was reselling, I would see this as having made $8 (~12%?) profit. Since credit spreads give you the money upfront however, I'm stuck. Did I loose 60% (Total - Close), 88% (Risk - Close), 53% (Credit - Close) or something else entirely?

Thanks!
 
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MJ DeMarco

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For those of you familiar with credit spreads, I could use a little help. I can't seem to quite get my head around figuring profit and loss.

Do you base your figures on the amount of risk/collateral, or the total spread? I *think* if I look at it like investing in inventory, I'd base everything on what I put up. Example:

$100 spread
$32 credit
$68 risk

I closed it for $60 to mitigate some of the loss.

So if I was reselling, I would see this as having made $8 (~12%?) profit. Since credit spreads give you the money upfront however, I'm stuck. Did I loose 60% (Total - Close), 88% (Risk - Close), 53% (Credit - Close) or something else entirely?

Thanks!

If you received $32 and bought it back for $60 you lost 88%.

If you received $32 and bought it back for $16, your return was 24% on risk, closed at 50% of max profit.
 

EPerceptions

Bronze Contributor
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Jun 6, 2013
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Virginia/Arizona
Thank you both. I'm practicing loss discipline and don't always release early enough, but it's better than losing 100%. I rolled this particular trade into a new $55 credit.
 
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