esculapius1975
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Hi, I am a newbie,
I am trying different bull put spreads with the short leg deep in the money
i.e. on 23 jan 2012 CFX was at 32.77$
Short 40 put @ 7.50 Feb
Long 30 put @ 0.65 Feb
Maximum profit is 685$ and maximum risk is 315$
provided that CFX looks very bullish if the stock goes only slightly up or sideways at expiration it should be very profitable if expires not exercised because you keep all the premium?
This looks a better deal than doing a traditional bull put spread with both legs OTM when you need high margin for a small return.
I do not see possible pitfalls or downsides of the strategy that I am adopting except the risk of having an early excercise of the short put if the price falls sharply.
Would the option exercise be likely or it most commonly happens that whoever has bought the DITM put will sell back the option getting the profit?
Since the downside risk is capped i do not see any particular problem with this strategy.
Can you advise please?
I am trying different bull put spreads with the short leg deep in the money
i.e. on 23 jan 2012 CFX was at 32.77$
Short 40 put @ 7.50 Feb
Long 30 put @ 0.65 Feb
Maximum profit is 685$ and maximum risk is 315$
provided that CFX looks very bullish if the stock goes only slightly up or sideways at expiration it should be very profitable if expires not exercised because you keep all the premium?
This looks a better deal than doing a traditional bull put spread with both legs OTM when you need high margin for a small return.
I do not see possible pitfalls or downsides of the strategy that I am adopting except the risk of having an early excercise of the short put if the price falls sharply.
Would the option exercise be likely or it most commonly happens that whoever has bought the DITM put will sell back the option getting the profit?
Since the downside risk is capped i do not see any particular problem with this strategy.
Can you advise please?