Quick definition
A vertical spread entered for a net credit — the trader collects premium at entry. Credit spreads are defined-risk short-premium structures used in higher-IV environments.
When they shine
Credit spreads perform best when IV Rank and IV Percentile are elevated — the trader collects more premium and benefits from mean reversion in IV alongside time decay. Selling credit spreads in a low-vol regime pays too little to compensate for the tail risk on the wrong side; the setup screens well but has poor expected value.
The tail-loss problem
The max-loss geometry is asymmetric — you collect small, you can lose several times the credit if the trade goes badly. Credit-spread traders who size for max-win-frequency rather than max-loss-tolerance eventually meet a bad tape and give back months of gains in a week. Position sizing is not optional on this structure.
How Treeova uses it
Credit-spread agents on Treeova enter only when IV Rank and IV Percentile both clear configurable thresholds. Position size is scaled to worst-case loss, not to credit collected, so a bad tape sizes to a survivable outcome. The Adaptive Risk Engine actively manages exits — trailing stops adjust to remaining extrinsic and time to expiration rather than firing at fixed dollar levels.