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

To: KFE who wrote (737)	6/3/1999 1:26:00 PM
From: jjs_ynot	Read Replies (1) \| Respond to of 2317

Ken, I was waiting for your response. I have read that in McMillan and think that he is just wrong about that. He has not considered the impact of Bid/ask spread and commission on vertical spreads. Also, time decay works more quickly to the benefit of OTM spreads. Dave

To: KFE who wrote (737)	6/4/1999 1:41:00 AM
From: Jon Tara	Read Replies (1) \| Respond to of 2317

Thanks for the clarification. I guess I missed the beginning of this discussion where it was explained that these were OTM index spreads. I can see the advantage of the cash settlement in terms of commissions. OTOH, I only pay $19.95 for commissions most of the time. Certainly, if you are with a more expensive broker, this can be a big advantage. Also, since it is a credit spread, it's certainly advantageous to use the more-expensive index options, as opposed to stock options. It sounds like you are essentially selling naked OTM calls, while capping the potential loss with the purchase of a higher-strike call. Would you consider doing this with something more wild, like IIX? Or is the relatively lower volatility (and greater predictability) of the OEX important? I'll look back over your messages, to get a feel for how far OTM you are going. It strikes me (pun intended) that if you go too far OTM, but differences between even a 10-point spread is very small, with a large potential risk. Of course, you would hopefully bail out if you are wrong well before you reach the maximum 10-point (or whatever the spread) minus the credit loss.