Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: Tom K. who wrote (166)	6/24/1998 4:01:00 PM
From: ccportfolio	Read Replies (2) of 2317

OK...it may be me who's slow here, but at least let me explain where my thought processes are... For the worst-case scenario, if the OEX finished above your short call or below your short put. Example: 2 sides covered short spread opened by: Sell call at strike of 960 Buy call at strike of 965 Sell put at strike of 900 Buy put at strike of 895 Assuming an average difference of $1 on both both sides of the spread for a total net credit of $2 X 100 - Commissions for each spread If the OEX finishes above 965, then the Call portion of the CvSS instead of being worthless at expiration (which is what you want) would be worth 100 x (965-960) = 500 plus commissions or considerably more than the net credit received for the whole position. This loss is offset a bit by the net credit of approx. 200.00 (minus commissions) initially received. Of course, the put side of the spread would have to expire worthless so there can only be a loss on one side of the spread... which is limited to the difference between the short and long strike prices + commissions - the net credit received.... Substantial still, but not exactly losing your shirt... Am I totally off base here?

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