Comments on: How Wide Should Your Strikes Be In A Credit Spread?

By: KIP WEBSTER

KIP WEBSTER — Tue, 12 Apr 2011 01:25:28 +0000

for me …doing 20 lots…a 5 pt spread = $10000 margin
per trade (regardless of tte)…easy for this math-challenged trader to keep track of….Traderkip

By: Steven

Steven — Tue, 15 Mar 2011 08:26:59 +0000

You are correct. It definitely is not always better, but rather often is. I would first determine how far OTM I want to place my spread (delta, ROI, etc.), then check the mid prices on the different spreads.
There is nothing written in stone. You must always do your due diligence

By: Genius

Genius — Fri, 11 Mar 2011 17:50:39 +0000

That’s not always the case. I suggest checking different strikes before placing the trade unless you are very familiar with the stock.

By: Steven

Steven — Thu, 10 Mar 2011 22:13:48 +0000

I like to use the smallest spread the underlying offers. I find I get the best ROI even when including commission costs. The other benefit is better protection as you indicated in your response.

By: Genius

Genius — Fri, 08 Oct 2010 14:44:58 +0000

I used the analyze graph on tos to determine the breakeven. I admit that I did not do the math myself.

By: Glenn

Glenn — Thu, 07 Oct 2010 00:15:34 +0000

If I open a call credit spread at 1200/1210 at $0.60 credit then the breakeven would be 1200.60 less commissions (probably 1200.58). You indicate breakeven of 1200.30 which doesn’t look right.

By: Genius

Genius — Mon, 26 Jul 2010 19:10:39 +0000

That is an interesting trading style. I would have to do some testing on it to see if it makes sense over the long term. The problem comes when you have a major drop in a stock. That will not only force you to buy the stock at a high price when it is much lower, but then the premium you will get from the calls will be much lower because the stock price is lower. For example, I did covered calls on LVS a couple years ago (which is about the same as what you are suggesting) and the stock dropped all the way to under $2 (from $17). I was getting like $20 for selling a near month call. Compared to the loss it was peanuts. Thankfully, the stock rallied and is now above when I bought it, but it took two years to get my money back. With your startegy as soon as you get behind in a trade it will take a long time to get back to even

By: Joe Black

Joe Black — Sat, 24 Jul 2010 05:45:33 +0000

This question was asked once before; but, I never saw your
response. What do you think of the following strategy?
I sell slightly “in the money” naked PUTS on ETFs and stocks. If the underlying is assigned to me, I sell slightly
“in the money” covered CALLS. Does this make sense to you?
With a high VIX and a stagnant market, I think I am making
money. I choose expirations approx. 4-8 weeks to maturity.
If the Calls are not assigned to the buyer, I continue to
sell Calls again and again on the same securities I hold.

By: Genius

Genius — Mon, 19 Apr 2010 15:29:37 +0000

The break even would be the price at expiration where you would not make or lose money on the trade. I cover breakevens more in detail in my free email course which you can sign up for on the homepage.

By: David

David — Mon, 19 Apr 2010 04:45:09 +0000

Nice info…
Could you elaborate on “break even” above. How do you calculate this. And what is it’s importance. Or is this listed elsewhere on your website? Thanks