Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: Scott who wrote (1565)	8/1/2000 9:36:56 PM
From: KFE	Read Replies (1) of 2317

Scott, Is it really this simple, or not quite? Yes, your understanding of the risk/reward is correct. As Philippa Sion stated it is usually more efficient to do the equivalent put credit spread but you will tie up an amount of buying power equal to what the call spread would have cost. When doing LEAPS spreads you have to be willing to hold for an extended period. LEAPS are thinly traded and have wide bid/asked spreads so they should not be used for short term trading. Also, the spread will not vary much in the short term even with a significant move in the underlying. For example, if MOT went up $10 tomorrow the spread you posted would only gain about a $1 1/2. It seems at this point that it's really just a wait and see game, hoping it doesn't fall below the initial call price, but if it does at least the loss is hedged. A better description might be to say that the loss is limited not hedged. I personally prefer OTM vertical spreads because you are profitable if the underlying stays the same, goes in the anticipated direction, or goes slightly against the anticipated direction. Regards, Ken

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