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First part...you're right on.
As for the 2 strikes, yes, you need 2 as you are long 1 strike and short the other. Basically a hedge so you're not selling naked. |
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OK - how do you determine how big the spread should be between the strikes? And how does that affect the bottom line?
In your trade here - if price goes PAST either level, that is not good, correct?
And as for needing two, that's b/c the long and short basically 'cancel' each other out so that you are not selling naked? This still allows you to sell the position as you have done here, but you are not naked b/c both sides are 'covered' in some fashion?