(01-04-2021, 07:08 PM)john Wrote: Thanks Mike,
For me selling cash secured puts and covered calls is simple and easy to understand.
I don't quite understand what spreads are, I have bought calls and puts before
For me that's a good way to lighten my wallet.
Could you explain spreads a little? In your example above what happens if KO closes below 50 what happens?
In my example you are buying 48 call because one is bullish on KO (assumption made), the 50 call is sold to help offset the cost of the 48 call you just bought. Total outlay $165 to make $35 in 32 days.
During the life of the option 3 things can happen. KO climbs up to 55ish or more (result is you can sell your spread early and make the $35)(regardless how high KO goes your max profit is $35) KO can stay flat (and you get your $35 at expiration) or KO can drop. If it drops(at expiration) below$50 you will not get $35 and some of your $165 is gone. If it expires between 48 and 50, you will recoup that amount of your $165. Let's say KO is at 48.50 at expiration, you will recoup $50 of what you paid.
If KO is below the call purchased (48) the entire $165 is gone.
People complicate options way too much IMO. There are only Calls and Puts and you can only sell them or buy them. That's it. How you use them to express your impressions of the market is up to you.