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Strategies & Market Trends : Systems, Strategies and Resources for Trading Futures -- Ignore unavailable to you. Want to Upgrade?

To: Patrick Slevin who wrote (38616)	10/25/1999 9:27:00 AM
From: SE	Read Replies (1) \| Respond to of 44573

Well, actually no. Let's walk this through. The market is now at 1300....so let's say I own a 1280 put. That gives me the right to sell one emini to the put writer at 1280. So if the market drops to 1270, I can buy one emini in the market and sell it to the put write for 1280 and bank the difference. OK, so instead I decide I want to make a little extra perhaps and I sell a 1250 put to someone else. That gives someone else the right to sell me an emini at 1250. However, I have the right to sell an emini at 1280 to someone else by virtue of having my 1280 put, so my downside is protected and I am guaranteed the spread between the strikes. How do I come out ahead? Well....when I sell the 1250, it is for bigger $ than I bought the 1280, so I am already ahead overall. If we bounce from 1270 and the puts expire worthless, so what? I made money. However if we tank, big, I will make from my put strike 1280 to the put strike I wrote 1250....plus the premium on the 1250 I wrote. Presumably this difference is larger than selling the put I own outright. Where am I mistaken?