A net credit occurs when the total premium received from selling a new options contract exceeds the cost of closing an existing one in the same transaction. The result is a positive cash inflow to your account.
Rolling for a Net Credit: In the wheel strategy, rolling a position "for a net credit" means the combined transaction puts more money in your pocket. If you buy back an old put for $3.00 and sell a new put for $3.50, you receive a $0.50 net credit ($50 per contract). This lowers your ACB further and gives you more time for the trade to recover.
Net Debit: The opposite of a net credit. If rolling a position costs you more than you receive, it is a "net debit" roll — you are paying to extend the trade. This is generally undesirable in the wheel strategy unless there is a compelling strategic reason.
Examples of Net Credit in Action
- 1Buying back a $100 put for $2.50 and selling a $95 put for $3.20 = $0.70 net credit ($70 per contract).
- 2Rolling a covered call up one strike for a net credit of $0.15 — a small credit, but avoids a net debit.
- 3Attempting to roll a deep ITM put from $100 to $90 — if the debit exceeds the credit from the new put, it is a net debit roll and should be reconsidered.