Comments on: Legging Into a Spread: An Option Strategy That Makes The Market Pay You

By: Investment U

Investment U — Tue, 27 Oct 2009 18:32:12 +0000

Ken,

Yes. When selling a call, we trade away the upside of shares rising above the strike price for an extra return up front.

Thank you,

Investment U

By: MICHAEL

MICHAEL — Tue, 27 Oct 2009 08:19:11 +0000

Hello Mr.Karim rahmtulla,
I am J.Michael Jacob from india i found your article very good enough, but i dont know much in options. could you explain this in any indian options contract.
I am ready to invest but i lack knowledge so could you you help me.

By: Tony DiRienzo

Tony DiRienzo — Mon, 26 Oct 2009 17:07:58 +0000

Kim, I read your articles and have been a 400 team player for a couple of months. I have drys in play right now and I’m waiting for another trade recco with a lower strike like the 7.50 and 12.50 strike leap spread already in play, however, instead of buying the 12.50 call leap leg of the spread, I sold it to take money in so I am limited on my upside gain. What can I do now to enhance this or change my current 2011 leap strategy? Also, do you have any current lower strike credit spreads I can put into play now (always X 10) contracts? Please advise. I’m trying to cover my subscription fee before I can make a profit and move forward.

Tony D

By: kers

kers — Mon, 26 Oct 2009 15:08:52 +0000

NO. selling a call just requires you to have the underlying shares in your brokerage account should u be called to deliver, OR suitable margin money with the broker.

By: dave w.

dave w. — Sun, 25 Oct 2009 13:31:55 +0000

That’s where the 12.50 calls that were purchased originally are for.
You couldn’t even sell options unless you already had purchased either calls or stock (or had a huge account).

By: Werner

Werner — Sun, 25 Oct 2009 01:05:08 +0000

Do I miss something here?
Step 1 ;you buy the $ 12.50 call options
Step 2 ;you sell the $ 15.00 call options against
the $12.50 ones.
Question!
Don’t you have buy the $15 calls before you can sell them?

By: jsmith

jsmith — Fri, 23 Oct 2009 23:01:03 +0000

sold the calls for $15 means sell the shares for $15. But bought the long expiry calls for $12.50 means that you buy the shares (if you wish or in this case need to) for $12.50 – in order to sell them for the $15 commitment. Upside $2.50 / share x 10000 shares

By: John T

John T — Fri, 23 Oct 2009 19:25:45 +0000

Karim, DO the options have to be the same dates as in January 2010? I have some AUY calls Jan 2010 and 2011 that are in the money already. Is this when you would sell higher strike price ones? I have Jan 2011 $5 calls and also 2011 7 1/2 ones. Should I sell an equal number of calls for AUY at say $15?
That part is still unclear to me.

By: Legging Into a Spread: An Option Strategy That Makes The Market Pay You | INVESTMENT NEWS&IDEAS

Fri, 23 Oct 2009 19:16:33 +0000

[...] post: Legging Into the Spread: An Option Strategy That Makes The Market Pay You Share and [...]

By: Robert

Robert — Fri, 23 Oct 2009 17:35:38 +0000

A very good explanation on how to reduce your risk after the stock has directional moved in your favor. This strategy does not eliminate the risk of your inital position if the stock does not move in your favor you are still at risk 12,500. My point is your article is misleading; 5000% return with little risk which is not true…There was a big risk initally and your explanation is not the proper way to evaluate the trade… there is no way of eliminating risk related to generating a high return, as you tried to makes us believe… FYI If your analysis determine CHK had limited downside & was in an uptrend then you could have sold out of the $$ puts to finance the trade and/or lower your cost.. I know risk with selling naked puts but really to geberate high returns there must be risk.