To Herm and Bridgeplayer,
Thanks for your replies. I guess I'll probably be buying at or near the Ask if I want a fast fill.
If I want to step into an uncovered bull spread, I find that it is hard to make more money than buying it all at once because you end up with much smaller positions. Let me round out numbers and give you an example of what I mean.
xyz selling at 35
March 30 call is 15
March 50 call is at 7.5
If I have $7500 to invest, the difference between March 30 at 15 and March 50 at 7.5 is $7.50. Thus if I buy the spread together I can get 10 contracts, with a potential of $20 on a $7.5 investment. That's $12.5 potential profit.
If I buy march 30 call now, and step step in with the same $7500, I buy 5 contracts at $1500. If I'm real lucky, I can sell the march 50 for $15 and bring my cost and risk down to zero. Five contracts, each with a potential to earn $2000 for a grand total of $10,000 gain vs the $12,500 gain ofthe first example, and with less emotional stress.
I guess going uncovered is a riskier approach than using call options to cover other call options. But for a limited investment, I think it can be very profitable, especially if I'm extremely bullish, and am unwilling to be called out of my stock position. (Yes I know about repair strategies, but I hate paying for that.)
your thoughts?
Richard |
