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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: steve armon who wrote (784)3/29/1998 1:51:00 AM
From: ----------  Read Replies (1) of 2241
 
Michael covered delta fabulously. I always wondered what it was.
He also explained why sometimes spreads get filled & sometimes not.
I never knew that. Thanks, Michael.

In theory, a spread as I believe you are implying, means you have less
money at risk in exchange for limiting your gains.
if you buy a xyz may 50 call for $2. and you sell a xyz may 55 call
for $1. , you have a net investment of $100 (commissions excluded).
Your maximum loss is $100. Your maximum gain is 55 - 50 =5 -1 =$4.
Anything between 50 & 55 belongs to you. Once the stock goes above
55, gains belong to whomever bought the 55 call. Under 50, the guy who sold you the 50 call gets to keep your $200 without delivering anything.

When rolling options, I always enter them as a spread. It is much safer to do so, imo. Michael explained rolling options accurately.
There is a standard question virtually everyone asks themselves before
rolling options:" O.K., how am I going to get out of this mess?" <g>

I'm currently rolling some Dell puts I sold before it split, because
"Dell will go up after it splits." Wrong! It dropped faster than Tiger Woods drops a 2 foot putt. That left me either buying Dell at a price
a lot higher than the current market, or using the question above.<g>

Regards,
Doug
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