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Strategies & Market Trends : Option Spreads, Credit my Debit
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To: FRANK J who wrote (1806)11/28/2000 1:02:44 PM
From: KFE  Read Replies (2) of 2317
 
Frank,

i have an intc 42.5/40 jan 01 for 1 pt, would you have closed it when it broke through?

I would not close out a 2 1/2 pt. spread that was put on for $1 credit when the short becomes ITM because your maximum loss is set at 1 1/2 pt. on entry. If it were a five point spread with a $1 credit I would cover. Most of my credit spreads are very short term so the length of time to expiration is not a factor in determining whether the spread is covered. The principle behind my cover point is that you should not have to make several good trades to make up for one bad trade. Using a 1 to 1 risk/reward ratio with OTM credit spreads allows you to be profitable even if your stock selection is not that good.

I almost always enhance my risk management by having both bullish and bearish option strategies in place at the same time.

Regards,

Ken
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