Monday, May 3, 2010

Options Experiment

Instead of taking a direct long position in a stock, I decided to try out an options set up of buying a call spread and selling an out of the money put to offset the cost of the call spread.

The pros are a much cheaper cost getting in the market and less allocation needed compared to buying stock directly.

The cons are if the stock sinks lower than a certain point, I'll be obligated to buy the stock at the strike price of the put. Therefore I can only do this with stocks I don't mind owning to stay out of trouble.

This is a good play if you were planning on owning a particular stock as it gives you an almost free entry to enjoy stock appreciation with minimal allocation of funds.

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