Originally Posted by
mispoken
Whatever works; but with the spread uses $35k in BP vs $300k. For me it’s a no brainer to use a spread. If the underlying is down on a put credit spread, a naked call will be down too.
If you sell the $2900 put back you now have 5 $3000 puts and will use $1.5 million in buying power (if I’m understanding what you’re doing right now). An important part of selling an in the money put spread is that this is more of a theta decay play (time decay) so time ticking away is where you’re going to make your money all while limiting downside and preserving buying power.
But, got to do what you’re comfortable with.
It is difficult for me to get my head around what a reasonable spread is. The one I put on has a $100 spread less the $31 premium, but in order to see any real money it seems that you have to put on a LOT of contracts, an then the danger zone can leave you open to having all those contracts assigned but then not being stopped at the bottom. The worst possible scenario would be to have the stock price at $2901 on expiration day which means you have to buy $1.5 million worth of AMZN and it is already underwater. Yeah I know... you have to watch it to know when to fold up your tent. But like I said, that is the part I am having a hard time getting my head around, especially with a big dollar stock and the volatility it can have from time to time. But again, thanks for the discussion. The brain exercise does give me something to think about anyway. I am just not sure if this method is right for me.
One other thing. On this spread, the leverage percentage gain is a LOT better than straight put selling. However, one does not use percentage to buy things.
Have a great Christmas amigo.