BloggingStocks http://www.bloggingstocks.com BloggingStocks http://www.blogsmithmedia.com/http://www.bloggingstocks.com/media/feedlogo.gif BloggingStocks http://www.bloggingstocks.com en-us Copyright 2012 Weblogs, Inc. The contents of this feed are available for non-commercial use only. Blogsmith http://www.blogsmith.com/<![CDATA[Strategy session: credit spreads]]>http://www.bloggingstocks.com/2007/07/23/strategy-session-credit-spreads/http://www.bloggingstocks.com/2007/07/23/strategy-session-credit-spreads/http://www.bloggingstocks.com/2007/07/23/strategy-session-credit-spreads/#commentsFiled under: ,

For many investors, the strategies I covered in parts one and two of this series are more than enough options for their liking. But for some readers, the really return-hungry readers, they want more strategies -- more ways to utilize these derivatives. Unfortunately for those readers (and fortunately for the first category), this is my last options strategy piece.

This strategy is easily the most complex of the three I've discussed, but it also has its uses. This strategy -- credit spreads -- allows investors to sell options that aren't "covered" or "cash secured," but the risk is still very limited if done correctly. To tell you the truth, this is the most speculative of any of the strategies discussed in the series.

Essentially, a credit spread is created by selling an option and simultaneously buying a cheaper, further from strike option. The more expensive, closer in-the-money option is sold to collect the premium while the further out-of-the-money option is bought in order to limit the risk of the position. For example, if you sell 25 call options and buy 30 call options, the maximum risk is $500 per contract vs. unlimited if there is no purchased option. This strategy is pretty versatile because you can use it with puts or calls.

Like the other two "strategy sessions," I'll do my best to teach through examples.

Continue reading Strategy session: credit spreads

Strategy session: credit spreads originally appeared on BloggingStocks on Mon, 23 Jul 2007 18:52:00 EST. Please see our terms for use of feeds.

Permalink | Email this | Comments]]>call credit spreadCallCreditSpreadCredit spreadCreditSpreadhomebuildersnet flixNetFlixnflxOptions investingOptionsInvestingput credit spreadPutCreditSpreadMon, 23 Jul 2007 18:52:00 EST