BP re: return
I'm not a math whiz, however, I believe that if there is no cash outlay, i.e., nothing "invested," one could consider the return to be infinite.
However as you have astutely indicated, the trade cannot be placed unless one is willing to put money aside as collateral (in a T-Bill at 6%) while awaiting the option to expire. My broker only requires 10-20% of the price as collateral. I try to keep 50%.
With the spread, there is money "at risk" in that it can be lost completely at expiration. With the PUTs, the risk is that you may wind up owning the stock, albeit at a reduced value, but it can just as easily go up and be recouped..... especially a stock like MSFT.
I support spreads as a safe approach and have used them on occasion. I'm simply illustrating an alternative approach to consider.
Tom |
