To: yard_man who wrote (34736 ) 10/29/1998 12:01:00 PM From: Knighty Tin Respond to
Tip, What McMillan is talking about is the peculiarity of puts and calls and the concept that you want to do bullish credit spreads and debit bearish spreads. Why? Because you use short puts for the bull credit spread. When puts go into the money, they lose time premium much faster than calls do, which affords you a faster profit than a debit call bull spread. This is wrapped up in the interest rebate on short stock sales. With a long put, you always have the alternative to put the stock to achieve a short position which then earns interest, which a put does not. With a long call, the alternative is long stock which earns no interest and, nowadays, has almost nothing in dividends. The time premium is likely to hold up longer than for in the money puts. The theory is that, since calls hold up longer, you should do debit bear spreads with puts. But I disagree. The disadvantage of a long put and the disadvantage of a short call in a bearish position, are just about the same.
