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    Scottsdale, AZ
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  1. The trade you are talking about is called a vertical bull put spread. I don't think it is a dumb strategy, it's my preferred method of doing a directional (long or short) trade. I like it because time is on your side....can get boring but pays off as expiration approaches. The reward/risk ratio probably isn't as high as buying calls but your winning percentage is higher. You can choose your probablity of winning and reward/risk ratio. If you want a 1:1 reward/risk ratio you would sell an at-the-money put and buy a put lower. For a higher probability trade sell a put out of the money and buy a lower put. You can play with different scenarios and pick which works best for you. Options provide a lot of flexibility. ThinkorSwim is excellent for this kind of analysis.
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