twfowler, >>What are leap credit spreads?
Here is a cut and paste from one of MB's posts on the idea: (I don't think he will mind)
"Much more difficult and perhaps impossible to explain to her are credit spread butterflies. But they are dandy income generators. In this one, you hold cash in a money market to collateralize the deal. Then, you sell a bull credit spread and a bear credit spread at the same strike price. For example, if UCL is at $35, you sell a $35 call and buy a $40 call, same month. Then, you sell a $35 put and buy a $30 put, same month again. This should be done at no capital risk. In other words, your net credit should be more than $5 in the example above. Then, she holds $7000 in money funds to collateralize all possibilities. She gets interest on that, and on perspiration day, she gets as much as $5 and as little as zero as a bonus. If played with the right stocks, that can boost her income trememdously. But it is a tough game and I have had trouble explaining it to pension fund managers, much less a mother in law. <g>"
During these days of risk in our mutual funds I purchase 13 week T-Bills. I legged into these by purchasing 1/13th of my cash for 13 weeks and roll them each week. My broker is happy to use this as collateral for these spreads. I played with this idea for a while on a spread sheet until I felt comfortable with the idea. I have been doing these spreads using leaps on these volatile stocks. One can do them on just one side of the spread either bull or bear, depending on which way you think the stock is going to move. My goal with these is to maximize my income with zero risk of my capital.
Joan |
