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Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: NateC who wrote (560)	2/16/1999 10:49:00 PM
From: KFE	Read Replies (1) \| Respond to of 2317

Nate, It doesn't appear that this strategy would have a desirable risk reward ratio. Your analysis that you basically bought the stock for $56 is correct, but the worst case scenario of 10K loss doesn't seem to be accurate. If stock closes at 45 on expiration you have lost 15.5 points on the stock, 8 1/8 points on the put credit spread, and keep the 2 3/4 point premium on the calls. This would be a net loss of 20 7/8 points or $20,875 before commissions. Any further drop below $45 and the additional loss would be dollar for dollar. Your maximum gain would be for the stock to close at $65 at expiration for a gain of 9 points or $9,000. Any gain above $65 would not be participated in because calls would be exercised. Anyone sees any flaws in this speak up. Ken

To: NateC who wrote (560)	2/17/1999 7:41:00 AM
From: dealmakr	Respond to of 2317

Nate, Something else to look at when doing that combo is the possible risk of increasing and continuing losses Example KLAC bot @ 60 1/2 65C sold 2 3/4 55P sold 2 1/4 45P bot 3/8 Total credit +4 5/8 What happens on exp. day if KLAC closes @ 46 KLAC position - 14 1/2 65C exp. + 2 3/4 45P exp -3/8 55P Exercised + 2 1/4. Stock will be put to you @ 55 resulting in a loss of 9 points on the additional KLAC position. You are now long 2000 shares of KLAC and subject to further downturns. While this may be a worst case scenario it should be considered as anything is possible. Margin requirements are also increased to hold the position. Setting up a put credit spread on a long position implies a bullish outlook for the stock and your market timing should confirm your position entry. Not shooting at you, just looking at possible additional risks. Good Trading Dave