Credit Spreads

I

insaneinvestor

Credit Spreads:

Here is my plan. I would like to know what it is lacking cause it sounds to perfect.

you want to buy and OTM put credit
then take that to fund a long call (OTM)
= all out by one strike

Total cost would be say $60
Potential to make full credit on puts and take some from the long call.
pitfalls: loose the call entirely (100) and be out some on the puts.

(This is one month out)

The way I see it is that I am risking 350 total (on both sides) to capture about that same amount, maybe a little more. BUT with correct management this could still make more than it looses even if things don't go your way.

So... what did I miss?
Thanks!
 
You may wanna re-read your post and then edit it accordingly.

For example, what does this mean?
Quote from insaneinvestor:

...
you want to buy and OTM put credit
then take that to fund a long call (OTM)
= all out by one strike
...
More...
How the heck do you buy an OTM put credit spread?

Also post details - strikes and prices.
 
The credit on the out-of-the-money put-spread will hardly buy an out-of-the-money call-outright. The "strategy" has too much of a bullish bias. If the market rallies strongly, you're profitable. If the market sits still or rallies only a little, you'll lose. If the market goes down, you'll definitely lose.
 
Quote from nazzdack:

The credit on the out-of-the-money put-spread will hardly buy an out-of-the-money call-outright. The "strategy" has too much of a bullish bias. If the market rallies strongly, you're profitable. If the market sits still or rallies only a little, you'll lose. If the market goes down, you'll definitely lose.
More...

That is correct, it would pay for about 1/2 the call price.

But I suppose you are correct. (the "strategy" sucks).

Is there a way to play both sides using leverage and minimal risk?
 
You must log in or register to reply here.
Back
Top