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Strategies & Market Trends : Classic TA Workplace -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (65242)	2/4/2003 2:03:47 AM
From: patron_anejo_por_favor	Read Replies (1) \| Respond to of 209892

<<Can QQQ get above 45?>> LOL, you KNOW what my answer is! <<I believe it is a bear credit spread that can not lose unless QQQ rises above 45. Sell the 55 buy the 45. Can QQQ get above 45?>> These are poots, right? If I sell 10 55 QQQ poots and buy 45 QQQ poots when the Q's are at 35 (assume no premium for now), I make 20 points on the sell, and pay 10 on the buy. So I've got 10 points in my pocket until expiration. 2. If I hold to expiry, and the q's close at 45, I'll "owe" 10 dollars to the poot holder I sold to, and my 45's expire worthless. Therefore I net zero. 3. If I hold to expiry, and the q's close at 55 or higher, my 45's expire worthless, the 55's I sold are also worthless, and I net the 10 bucks I received initially. 4. If I hold to expiry, and the q's close at less than 45, I'll start to pick up value on the 45's but it is exactly offset by the poots I sold at 55, less 10. So if it closes at less than 45, I lose nothing example: Poots close at 35. I "pay" 20 dollars to the holder of the 55 poots, and I receive 10 dollars for the 45's I bought. Plus, I still have the 10 dollars I got at the initial trade: Net=10+10-20=0 5. If the q's close between 45 and 55, my net gain on the trade is 10-(55-x), where x is the stock price at the close on expiry). My 45's are worthless, so the only remaining question is how much between zero and ten bucks to I pay the 55 buyer. From my standpoint, the higher the better, 'cause I already have my original 10 bucks in the bank collecting interest, and I want Mr. 55 to go to poot heaven. As you can see, in none of these scenarios is my money at risk. I benefit on any close above 45, up to a maximum of 10 points if it closes at 55 or higher. Thus, it IS a bullish bet, but one with no (or very little, depending on the exact prices paid and received) downside. It's a classic bullish poot spread. Sorry for making this so wordy, but it's a basic tenet of spreads, so I thought it might be instructive to someone.