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November 14th, 2012 at 9:57 am
Phil – will you check the logic / math on this trade –
Let's say I am slightly bullish but think we could have another 5% drop. I want to eventually be long IWM.
I sell the IWM Dec. 77 call for 1.45
I then buy the dec. tza 16 – 20 bull call spread for $1.37 – it's currently 100 % in the money.
Let's call this trade even with trading costs.
So if TZA goes to 20 – 5% move in IWM – I get paid $4 and I have to buy IWM at 77 – 4 = $73 – it's probably trading around 75 if it's off 5%
This is much better than just selling the naked put – am I missing something here? I guess it's not a free trade bc I have the chance of getting the stock put to me.
Thoughts