I'll use IB's commiss. structure to illustrate. ($0.75/contract)
When trading a credit spread, which underlying you choose is going to make a huge difference. The difference between strikes could be $20, $10, $5, $2.5, or $1. I rarely trade the issues that have $20 strikes, so we can eliminate them. The majority that I trade will be either $5, $2.5, or $1 strikes, and I'm pretty evenly spread between the three. So let's assume an average play at $2.5 strikes.
It takes $1.50/contract to get into a credit spread. My average credit on those plays would be $115/contract. So 1.3% of my profits are going to be eaten up to get into the trade. This is regardless of the price of each leg or the underlying. The maximum commiss. I pay would be 2.6%, in the cases where a trade needed to be exited early.
If you get rid of technical and fundamental analysis, or anything that might give me an edge in choosing the direction, then I have a 50/50 shot at being right. So 50% of the time the position will expire worthless and I will not have to pay any commiss. to get out. The other 50% of the time it will go against me and I will get out early for the max commission.
So the "uphill battle" for credit spreads in my case is 1.95% (1.3% to get in, and 0.65% to get out).
This is a much harder calculation if you are simply buying long directionally. Single leg = 1/2 as much commission, but you almost always have to make another trade to get out. So if you always bought options with the same profit target ($115/contract) as in the credit spread example, then your "uphill battle" would be 1.3% (0.65% to get in, and 0.65% to get out).
So single leg plays have a 0.65% advantage over simple spread plays. IMHO this is made up for by a probability of profit comparison. You can't easily determine what % you would have to be right on long single leg plays, because you can be right and still lose money. That can't happen on an OTM/ATM credit spread.
The questions that follow this relate to risk and leverage.
