Sorry Jim. Yes, it does require writing (shorting) options, but not naked as it is covered by the long option position. A bear spread, using puts, means buying the higher strike price and writing or selling the lower strike price. In this example, the intrinsic value if the index is below the lower strike price of 1120 is always 50, the difference in the strikes. If the index is above the lower strike, the intrinsic value (the value at expiration) is the amount the higher strike put is in the money, so at 1139, it would be worth 31 which is what you'd have paid to establish the position when I posted.
Anyway, my thinking was that the odds favored the S&P NOT rising enough near term to make the position unprofitable, yet the timing of further downside (if any) is uncertain, so with this position, one can make a 60% gain in either a flat or down market to expiration. The risk, of course, is that the S&P rallies sharply to over 1170, making the position worthless, but I don't see much chance of that.
BWDIK?
Bob |
