Option Spreads, Credit my Debit Message Board

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Strategies & Market Trends : Option Spreads, Credit my Debit

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To: NateC who wrote (560)	2/16/1999 10:49:00 PM
From: KFE	Read Replies (1) of 2317

Nate, It doesn't appear that this strategy would have a desirable risk reward ratio. Your analysis that you basically bought the stock for $56 is correct, but the worst case scenario of 10K loss doesn't seem to be accurate. If stock closes at 45 on expiration you have lost 15.5 points on the stock, 8 1/8 points on the put credit spread, and keep the 2 3/4 point premium on the calls. This would be a net loss of 20 7/8 points or $20,875 before commissions. Any further drop below $45 and the additional loss would be dollar for dollar. Your maximum gain would be for the stock to close at $65 at expiration for a gain of 9 points or $9,000. Any gain above $65 would not be participated in because calls would be exercised. Anyone sees any flaws in this speak up. Ken

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