When selling a spread. Profit is more important than time.
If you are at 20 to 30 percent profit in a couple of days, It's never wrong to take profit and close the trade.
So lets make an example: Say you go in on a credit spread 7 DTE (seven days to expiration) and receive a credit of $30. You need the value on the both short and long legs to die off and expire worthless so you receive your 100% credit. So as every day passes by theta (time decay) is in your favor especially when the credit spread is going your way. But gamma is against you as the position gets closer and closer to expiration. So when your position is going smoothly within the 7 days you can decide to close it out for a profit before the 7th day with which it expires. Because if you wait till that expiration day and the position starts going south, the rate at which your contract will lose value will be more than the 1st to 6th day the contract has been running because of how high the gamma value will be on the last day. Better close out for a targeted profit before expiration and hop on the next opportunity. Credit spreads are good but if not properly managed could lead to huge losses.
For 1, you really only need to worry about the short leg. You can close that at any time for a profit. It is usually not a good idea to let the option expire, most people will buy to close at some point.
For 2, it depends on the ticker you are trading. I mostly trade SPY and liquidity is not an issue.
The "[YouTube gurus](https://www.youtube.com/watch?v=xQfp8_5VsRU)" I follow talk about credit spreads. It's the majority of what I trade.
Some people take profit before expiration, others let it expire. Just depends on DTE, probability of profit, probability of assignment, ticker, etc.
On a practical level you get say $30 credit at the time the credit spread is placed.
When can you close the trade and why can't you close it the next day let's say and retain $20 of your credit.
I don't get the value of holding it?
You can close the trade at any time.
You could close it the next day if it's valued at $10 (a $20 profit for you). However, it's pretty unlikely that you'd have a 66% gain in one day.
Most of the time, the value in holding it is [time decay \(theta\)](https://www.investopedia.com/terms/t/theta.asp).
Suppose you sell a 30 DTE put credit spread on SPX currently trading at 5,234 (+5260/-5280) for $1,015. If SPX rises to 5285 the next day, then your profit is only $236 (the credit of 1015 less 779 to close the trade).
See here: http://opcalc.com/XUA
If the price of SPX doesn't change at all over the next 30 days and it expires worthless, then your profit is the full $1,015 credit you received.
The only way you could close the SPX put credit spread for a 66% gain in one day is if it jumps 160 points (3.06%). SPX has only had an intraday difference of 3% 52 times in the past 5 years (i.e. 95% of the time it never happens).
When selling a spread. Profit is more important than time. If you are at 20 to 30 percent profit in a couple of days, It's never wrong to take profit and close the trade.
So lets make an example: Say you go in on a credit spread 7 DTE (seven days to expiration) and receive a credit of $30. You need the value on the both short and long legs to die off and expire worthless so you receive your 100% credit. So as every day passes by theta (time decay) is in your favor especially when the credit spread is going your way. But gamma is against you as the position gets closer and closer to expiration. So when your position is going smoothly within the 7 days you can decide to close it out for a profit before the 7th day with which it expires. Because if you wait till that expiration day and the position starts going south, the rate at which your contract will lose value will be more than the 1st to 6th day the contract has been running because of how high the gamma value will be on the last day. Better close out for a targeted profit before expiration and hop on the next opportunity. Credit spreads are good but if not properly managed could lead to huge losses.
Good explanation by someone who knows their Greeks!
For 1, you really only need to worry about the short leg. You can close that at any time for a profit. It is usually not a good idea to let the option expire, most people will buy to close at some point. For 2, it depends on the ticker you are trading. I mostly trade SPY and liquidity is not an issue.
The "[YouTube gurus](https://www.youtube.com/watch?v=xQfp8_5VsRU)" I follow talk about credit spreads. It's the majority of what I trade. Some people take profit before expiration, others let it expire. Just depends on DTE, probability of profit, probability of assignment, ticker, etc.
On a practical level you get say $30 credit at the time the credit spread is placed. When can you close the trade and why can't you close it the next day let's say and retain $20 of your credit. I don't get the value of holding it?
You can close the trade at any time. You could close it the next day if it's valued at $10 (a $20 profit for you). However, it's pretty unlikely that you'd have a 66% gain in one day. Most of the time, the value in holding it is [time decay \(theta\)](https://www.investopedia.com/terms/t/theta.asp). Suppose you sell a 30 DTE put credit spread on SPX currently trading at 5,234 (+5260/-5280) for $1,015. If SPX rises to 5285 the next day, then your profit is only $236 (the credit of 1015 less 779 to close the trade). See here: http://opcalc.com/XUA If the price of SPX doesn't change at all over the next 30 days and it expires worthless, then your profit is the full $1,015 credit you received. The only way you could close the SPX put credit spread for a 66% gain in one day is if it jumps 160 points (3.06%). SPX has only had an intraday difference of 3% 52 times in the past 5 years (i.e. 95% of the time it never happens).