Hi guys. Long time lurker, first time poster. I trade on OptionsXpress. General question: Can I finance a debit call spread with a credit put spread in the same trade? For example, FFIV for Jan 18 expiry: Debit call spread 160/170: Debit 5.60 Credit put spread 130/120: Credit 2.30 Net debit for the whole trade: 3.30 The whole idea of selling a 130 put is to reduce the cost of the debit call spread. Since I'm unwilling to take the risk of a naked put, I'm capping the downside by buying the 120 put. Hence, the credit put spread. Question 1: Is this a valid approach? Question 2: I can set the put spread up for earlier expiry, Oct 17 for example. Is this still valid? Thanks guys.
Why would it not be valid? You have to realize though, that they both are bullish trades... long call spread and short put spread... Draw a payoff graph and do some thinking about what happens if... what happens if stock drops 5%... what does IV do... how does that affect my position? Am I fine with the stock being at 100... what do I do when the trade is in profit? etcetc...
my personal view on this: 'are you out of your mind doing this after such an old bull market' ... I hope for you this is a theoretical exercise for your papertrading account ;-)
No. Reg-T account, you would have margin on both spreads. PM account, they both lose money if the stock drops, so there is no offset.
Why are you making it so complicated. If you are bullish on the stock and want to receive credit, just use a credit put spread.
If the stock goes up, you make 6.70. Down, you lose 13.30. So you need to be right >⅔ of the time (ignoring, for simplicity, times when the stock is ~unch).
LOL yes I know they're both bullish. Did the payoff graph already, looks fine. I haven't priced the IV into the pricer (I don't necessarily like the OX pricer, so I use my own code if I need to, from the KP function). Jut a bit about my background, I've done fixed income trading, mostly futures, forwards, swaps and so on. But this is work and in addition, these are large leverage trades for arbitrage opportunities, whereas options trading is personal and obviously much smaller capital at risk. This is good advice though, I need to get on it. I was looking at more of a general view from you guys though, just from experience, in case you had the occasion to try this.