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Strategies & Market Trends : Option Spreads, Credit my Debit
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To: robert b furman who wrote (2239)2/4/2003 1:35:13 AM
From: Dan Duchardt  Read Replies (2) of 2317
 
The prices on those transactions were buys at 20.40 and sells mostly at 30.20 with some at 30.30. Worst case there was a credit of $980 per contract pair that MIGHT have to be repaid in two years, plus $20 "interest" if both strikes expire in the money. That works out to just slightly over 1% per year. At worst $1000 per contract pair must be held in the account for the duration, but just maybe it can be held in some interest bearing instrument that will at least cover the $20 over the life of the contracts and perhaps net a positive return. If so and the contracts reach expiration day there is no risk of loss, and the possibility that QQQ will get past 45 by expiration, which would make for a healthy payday in the form of some retained amount of the credit. Early assignment could be a nasty surprise, but is very unlikely until near expiration.

The somewhat equivalent bull spread with calls bought at 45 and sold at 55 could have been obtained for a debit of $60 per contract pair at quoted prices, which takes money out of the account and has 3 times the risk of the put spread, even if the put credit has to sit at no interest. Getting that put spread with the $980 credit was a real bargain.

Ken might be able to give us some insight into who might be able to arrange a transaction that size and what one might be permitted to do with the credit $$
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