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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? |
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I determine how big it should be by looking at the risk associated with it. Basically, I keep moving them around to see if a 2 dollar spread would work better than a 1 dollar...and right now there's a couple more positions that look TASTY.
If price were to go past one of those levels, I'd already be adjusted or hedged so that wouldn't matter. It would suck, yea, but I'd be safe.
3rd...right.