A 10 point credit spread selling to open a 40 nickname and buying to open a 50 name for a credit of .50. What are the risks, requirements, max gain and max Loss?
Answers: I am assuming the underlying is a stock that does not pay dividends. I am also ignore transaction costs.
Requirements:
A margin statement authorized to trade spreads and $950 margin available.
Max gain:
$50 if the stock is lower than $40 at expiration.
Max loss:
$950 if the stock is over $50 at expiration.
Risks:
Losing money if the stock is over $40.50 at expiration.
If stock is over 50 at the end of the picking period, you will exercise your nickname and get stock at 50 so that you cal deliver it at 40 for a loss of 10. For this risk of 10, you get 50 cents. You must be really sure that stock is going to stay below 40.
Did you figure surrounded by commissions?
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Answers: I am assuming the underlying is a stock that does not pay dividends. I am also ignore transaction costs.
Requirements:
A margin statement authorized to trade spreads and $950 margin available.
Max gain:
$50 if the stock is lower than $40 at expiration.
Max loss:
$950 if the stock is over $50 at expiration.
Risks:
Losing money if the stock is over $40.50 at expiration.
If stock is over 50 at the end of the picking period, you will exercise your nickname and get stock at 50 so that you cal deliver it at 40 for a loss of 10. For this risk of 10, you get 50 cents. You must be really sure that stock is going to stay below 40.
Did you figure surrounded by commissions?
Resolved Questions: