Smart trading: Picking no lose stocks
- Thread starter Option Trader
- Start date
IMO, credit spreads are the best option strategy if you almost know you've got a stock that can't go down; there is left two remaining possibilities (it goes up or stays still), and both are winners. Alternatively, that is the one time I would consider covered calls, if it is also a low priced stock (e.g. below $10-$15).
Tricky questions? Synthetical equivalents.Quote from jj90:
Aw cn, you took the fun away.
You can have fun answering your own tricking questions and doing some educating. I'm curious, I'm not too familiar with credit and debit spreads.
Fair value equation:
strike + call = underlying + put + cost_of_carry - dividend
where: cost_of_carry = cash_flow * days/365 * interest rate
strike, cost_of_carry, divident being constant, to compare strategies (pay-off) use:
call = underlying + put
covered_call = underlying - call = - put
bull_vertical_spread = sell_higher_strike & buy_lower_strike
bear_vertical_spread = buy_higher_strike & sell _lower_strike
credit_spread = bull_put_spread or bear_call_spread
debit_spread = bull_call_spread or bear_put_spread
bull_put_spread = - put_hi_strike + put_lo_strike for credit
bull_call_spread = - call_hi_strike + call_lo_strike for debit
strike + call = underlying + put + cost_of_carry - dividend
where: cost_of_carry = cash_flow * days/365 * interest rate
strike, cost_of_carry, divident being constant, to compare strategies (pay-off) use:
call = underlying + put
covered_call = underlying - call = - put
bull_vertical_spread = sell_higher_strike & buy_lower_strike
bear_vertical_spread = buy_higher_strike & sell _lower_strike
credit_spread = bull_put_spread or bear_call_spread
debit_spread = bull_call_spread or bear_put_spread
bull_put_spread = - put_hi_strike + put_lo_strike for credit
bull_call_spread = - call_hi_strike + call_lo_strike for debit
Hydro, the OTM credit = the ITM debit. The ITM credit = OTM debit. CCs = naked put. The OTM credit is similar to the ITM debit since the 'credit' you get back is the same as the premium that has to decay (if any) in the ITM debit. The risk profile is the same. My wording is bad, hope that made sense.
It would seem to me that would depend if it is a high or low volatility stock.