Options101: A Credit Spread is much less riskier than a Naked Put. ----------------- diaoptions has spoken
If you are arguing/comparing shorting 8 APPL Sept 665 puts vs 70 Sept 660/640 put spreads,I think delta is very much the point. Again,I ask you and PM would you rather be short 1 naked 665 put in AAPL or 2.5 660/640 Put spreads?
You are asking me to decide between 2 strategies on a stock I don't trade, and at a price I would not trade. That's not going to happen, as i am very picky about the stocks and price i trade in. But nice try.
In terms of microstructure it's a slam dunk. As a day trade the 665P every time. T/V are greater, better fill and cheaper to execute. But purely hypothetical as I don't do buy-writes. You question makes me question if you've got any experience in vol at all. Don't ask a question you don't know the answer (to).
AAPL @ $674.80 Position One: Sell Sept2012 665 Put @ $12.50 Credit = $1,250.00 Position Two: Sell 3 Sept2012 660 Puts @ $10.55 x 3 = $31.65 Buy 3 Sept2012 640 Puts @ $5.35 x 3 = $16.05 Credit = $1,560.00 Max Risk = $4,440.00 The spread looks much better. There is no price point of AAPL were the naked put does better than the spread.
While this still remains a stock and strike i would never invest in, my question for you 2 gentlemen, (who live in fantasy land, where stocks don't drop) is,.... Suppose the stock suddenly drops to $639. (Not really a big % drop). Which stock do you want to be in? Write down the new current account values. For those just joining us, per ATTICUS, this is an account worth $100,000.
I'm going to be very curious to see which stock our 2 credit spread bulls wish to be in, when they have to invest outside of "Fantasy Land". In Fantasy Land one does not need to consider risk/reward, or chance of a stock dropping, or potential adverse risk to account value, and so on.... In Fantasy Land, it's only about comparing rewards, prior to making an investment. It sure seems like a swell place to live. I hear they even have talking unicorns that can fly.