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June 6th, 2010 at 3:13 pm
Phil: For those of us that are new members who have been deploying our 20% cash the last week and have not yet bought disaster hedges, how would you adjust the following spread to protect the 20K in buy/writes with EDZ at $53?
" With EDZ now at $44, the 2012 $70 calls are very overpriced at $15, especially since you can buy the 2012 $45s for $18.50. Even paying $3.50 for this spread is not at all terrible and you can JUST do that and sit on your $21.50 upside (615%) from a spread that’s currently at the money or you can drop your net down to $1.50 by selling 1/6x the 2012 $35 puts at $13.50. I like this play at 12/2 because you are collecting $2,700 against $1,200 in net margin and buying $30,000 worth of upside protection for $4,200 so net $1,500 for the whole play."