Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Point and Figure Charting -- Ignore unavailable to you. Want to Upgrade?

To: iGregor who wrote (5093)	7/25/1998 6:50:00 PM
From: Dennis J.	Read Replies (1) \| Respond to of 34811

Bearish Spread Understand your confusion. Sorry for being cryptic. A bearish spread is an option spread designed to make money when (if) the stock declines in price. In-the-money spreads are expensive, but have little premium. At- or out-of-the-money spreads are mostly or all premium. With stock at 50, consider a $60 call for $10-11 and sell the $50 call for about $4-6. This is a $10 bearish spread. You have $5-6 on the table, own an ITM call with a delta near 1.0, and capped at $10 profit. If stock remains at $50 or less, you get $10. You probably still break even at $53, and your $60 put is still worth something even if the stock rises further. That's the idea. A variation is to buy the $60 put and wait for a several dollar decline, then sell the $50 put. Still capped at $10, but now have less invested after completing the spread. Your commissions are double, unless you wait to expiration. All just my opinion only. Good luck.