About your use of the recovery spread to protect a runaway CC position:
If you've got a covered call position, and the stock starts rising above your strike price, and you think it's going to keep going, the traditional approach is to buy back your calls, and write new ones at a higher strike price. This raises your net cost and reduces your downside protection, though.
You've been recommending turning the CC position into a recovery spread by buying some calls at a lower strike, and writing some at a higher strike. That will only behave like a normal recovery spread if all your short calls are at the same strike. Otherwise, you're just opening up a debit bull spread alongside your covered call position.
If you're going to do that, you might as well open a credit bull spread, by using puts instead of calls at the same strike price. The risk and reward are about the same, but the margin requirement is different, and you earn interest on the money you set aside as margin.
Besides, I've already got a page on my site for looking at these!
Doug.
PS: Have you seen my BB/RSI page today? I went through by Bollinger Bands book, and saw a description of %b and Bandwidth charts, which Bollinger says he's been looking into. I don't think I've seen them charted on any of the free sites before, but they're available on mine... |
