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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: RoseCampion who wrote (1875)2/29/2000 2:11:00 PM
From: Dan Duchardt  Read Replies (1) of 2241
 
Rose,

Thanks for the additional alternatives. I've yet to do a spread because I don't have an appropriate account, but they certainly look interesting. Going into a position with a known and tolerable worst case loss is appealing. As always, the price you pay is that you limit your upside, which is of course also true of CCs and "naked" puts.

The only thing that strikes me about your examples is that the risk in the call credit spread (30) is greater than the potential gain (20). At least the put debit spread gives you equal potential gain (20) and loss (20). Of course you don't have to wait to the bitter end to stop the bleeding if it goes against you, but all this volatility could still cost you a lot of sleep if taking the full loss is too much for you to bear. If I was going to get in with the idea of riding the position through negative territory if it went the wrong way, I think I'd want a better gain/loss potential ratio, or a higher probability of ending with a profit. Based on a very quick look at the quotes it appears you can move your breakeven price higher with little additional debit on the puts or loss of credit on the calls. I'll probably take a closer look at this after the close.

Dan
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