How To Write Covered Calls - An Ongoing Real Case Study! Message Board

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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study!

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To: Jeff Meek who wrote (11314)	8/1/1999 7:31:00 PM
From: NateC	Read Replies (1) of 14162

The bull put credit spread was a popular topic on this thread quite a few months back. The consensus was, if you like the stock, and can get a good credit on the spread, then it can be a nice play. However... It was also pointed out that you have a big exposure. Deep ITM puts have almost zero time premium. This is why the guy in question was able to get a good credit. The problem is that having 0 time premium also leaves you vulnerable to arbitrage moves by MMs or others. So your short deep ITM puts are more likely to get exercised early. This can put the whack on your carefully laid plans. You could immediately sell the stock put to you and resell the puts. The bull put spread, as I learned it.......is essentially when you sell a naked put...(say XYZ's at 50).....you sell the 45 Put..and pocket the cash.........and then you buy the 40 Put.....using some but not all of the cash (net credit spread)....... If XYZ stays above 45, you keep the net credit... If it goes down between 40 and 45 at expiry....you get exercised on the 45 you sold...(or you buy it back)..... And if it goes below 40....your long put increases in value , hopefully point for point...as the short put decreases...so your net loss is 5 points. Someone said that if your broker doesn't let you sell naked puts,many of them WILL allow you to do bull put credit spreads

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