Credit Spreads

Discussion in 'Options' started by insaneinvestor, Oct 19, 2007.

  1. Credit Spreads:

    Here is my plan. I would like to know what it is lacking cause it sounds to perfect.

    you want to buy and OTM put credit
    then take that to fund a long call (OTM)
    = all out by one strike

    Total cost would be say $60
    Potential to make full credit on puts and take some from the long call.
    pitfalls: loose the call entirely (100) and be out some on the puts.

    (This is one month out)

    The way I see it is that I am risking 350 total (on both sides) to capture about that same amount, maybe a little more. BUT with correct management this could still make more than it looses even if things don't go your way.

    So... what did I miss?
  2. MTE


    You may wanna re-read your post and then edit it accordingly.

    For example, what does this mean?
    How the heck do you buy an OTM put credit spread?

    Also post details - strikes and prices.
  3. The credit on the out-of-the-money put-spread will hardly buy an out-of-the-money call-outright. The "strategy" has too much of a bullish bias. If the market rallies strongly, you're profitable. If the market sits still or rallies only a little, you'll lose. If the market goes down, you'll definitely lose.
  4. That is correct, it would pay for about 1/2 the call price.

    But I suppose you are correct. (the "strategy" sucks).

    Is there a way to play both sides using leverage and minimal risk?