Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: Jon Tara who wrote (1096)	1/5/2000 10:40:00 AM
From: KFE	Read Replies (1) of 2317

Jon, That was a nice credit for that trade. As far as risk/reward in credit spreads there are two risk/reward factors that should be looked at. The first is the dollar amount at risk and the second is the risk/reward of the probability of finishing ITM at expiration. A larger credit on an ATM spread might actually be more risky than an OTM spread for a lesser credit. I also believe that your risk is what you let it be. I use mental stop points that usually limit my loss in credit spreads to an amount equal to my credit received. It has worked very well for me . I legged-in to this position I just wanted to get my feet wet, and this was the safest thing I could think of in semi-panic mode These two statements seem to contradict each other. I don't believe that spreads should be legged into if your purpose of using them in the first place was to limit your risk. If you really think that you have a feeling for the direction of the underlying then play it by trading the underlying or option purchase. When legging into a spread you leave yourself open to full market risk. You should also be able to trade between the bid/asked spread when placing the order as a spread. I have to admit that I have broken this rule in the past but I have learned my lesson. I still occasionally leg out of a spread that has gone against me but I do it with full knowledge of the risks involved. Options on the HHH internet trust have started trading. I have shorted it twice so far and got lucky(can be shorted on down ticks). I haven't traded options on it or the IIX mainly due to the wide bid/asked spread. Good luck with QQQ spread. Regards, Ken

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