<<< There is one other very important point you have been trying to make that I don't think people understood.
If I max out my cash providing margin for my spreads and the market crashes going below all my spreads and stays there for the duration of the spread I am broke.
Nil... Nada... end of story.
Once the spread is expired that money is never comming back.
While if I am instead put stock... stock is forever. It doesn't expire and I could simply wait the time it takes to bring it's value back. 5 years... a nuclear winter... and so on.
And I think you were trying to say that if you are doing these spreads it's important NOT to use all your cash for margin and to allow money to take stock puts to survive such a market wide disaster. I agree with that. >>>
EXACTLY!!!
You are actually the first and only one to acknowlege that issue, which I've been trying to warning spread investors about.
They seem so comforted by the idea that their potential losses are "limited" to and by the spread gap, that they don't realize how quickly their account value could be 100% wiped out.... no 2nd chances.
Hence the reason NOT to use all your account cash on spread investments.
Hence the reason to keep a reasonable cash reserve, so you have the ability to "consider" buying some or most, of your stocks going bad.
Hence the reason why there is a risk difference between a $15 (2.5 gap) spread and a $50 (2.5 gap) spread.
Hence the reason spreads "may be" even more risky, more dangerous, more difficult to manage, more unpredictable, more volatile, more stressful, and can wipe you out a lot quicker than even selling naked puts on margin,.... if you don't manage a spread portfolio's risk intelligently. ((( I am NOT encouraging investors to sell naked puts on margin))).
Intelligent spread investing means having a plan "B" in mind, BEFORE you initiate a strategy composed of selling spreads.
Thank you for your participation in the discussion.
If I max out my cash providing margin for my spreads and the market crashes going below all my spreads and stays there for the duration of the spread I am broke.
Nil... Nada... end of story.
Once the spread is expired that money is never comming back.
While if I am instead put stock... stock is forever. It doesn't expire and I could simply wait the time it takes to bring it's value back. 5 years... a nuclear winter... and so on.
And I think you were trying to say that if you are doing these spreads it's important NOT to use all your cash for margin and to allow money to take stock puts to survive such a market wide disaster. I agree with that. >>>
EXACTLY!!!
You are actually the first and only one to acknowlege that issue, which I've been trying to warning spread investors about.
They seem so comforted by the idea that their potential losses are "limited" to and by the spread gap, that they don't realize how quickly their account value could be 100% wiped out.... no 2nd chances.
Hence the reason NOT to use all your account cash on spread investments.
Hence the reason to keep a reasonable cash reserve, so you have the ability to "consider" buying some or most, of your stocks going bad.
Hence the reason why there is a risk difference between a $15 (2.5 gap) spread and a $50 (2.5 gap) spread.
Hence the reason spreads "may be" even more risky, more dangerous, more difficult to manage, more unpredictable, more volatile, more stressful, and can wipe you out a lot quicker than even selling naked puts on margin,.... if you don't manage a spread portfolio's risk intelligently. ((( I am NOT encouraging investors to sell naked puts on margin))).
Intelligent spread investing means having a plan "B" in mind, BEFORE you initiate a strategy composed of selling spreads.
Thank you for your participation in the discussion.
