Richard, That isn't a bad IRA strategy at those prices. The key is price. However, you will lose 9 points if Yahoo has a precipitous drop. Since my spread conversions are in my income account, a chance of losing doesn't figure into my plans. <g> I tend to do both the puts and calls in far out Leaps where the chance of capital loss is zero or negative. Sometimes I will take a point potential loss if I think the stock has potential to rise quickly.
Also, the spread conversions are only for the IRA Income account where I can't do credit spreads with options alone. The spread conversion is really a sell at the money put, buy out of the money put, hold cash equivalent, and that is a much more efficient way to put on the position than messing with the stock. In the example you mentioned, you are talking about a calendar spread. For example, you accomplish the same thing by selling July 180 puts and buying the Jan 160s, and holding the cash, at interest, that would have gone into the purchase of the stock. |
