I have 50 contracts of MSFT $27.50 Jan 12 calls purchased at $2.90 that I am thinking about turning into what is called a bull call spread by writing some Jan 12 calls at $30 for 1.80. On paper, it looks pretty decent, if I have things calculated correctly:
Total purchase price: $14,500
Cash from writing $30 calls: $9,000
Total at risk: $4500 (plus commisions)
I break even if the stock closes 2011 at $28.50ish and I make $7000 if the stock closes above $30 (pretty likely). The most I lose is $4500.
Seems reasonable for my high risk/high reward play money account in my IRA. That would be a 48% return for a max loss risk of 31% if I calculated things correctly. I think this might be quite a bit less risky than just holding the Jan 12 $27.50 calls as I orginally intended, where my max profit is unlimited, but my max loss is also 100%.
Any of you write spreads? I have to upgrade my Etrade account from level 2 to level 3 to even be able to do this...even though as I pointed out, the spread seems to have less risk than buying a call (which you can do in level 2).
Total purchase price: $14,500
Cash from writing $30 calls: $9,000
Total at risk: $4500 (plus commisions)
I break even if the stock closes 2011 at $28.50ish and I make $7000 if the stock closes above $30 (pretty likely). The most I lose is $4500.
Seems reasonable for my high risk/high reward play money account in my IRA. That would be a 48% return for a max loss risk of 31% if I calculated things correctly. I think this might be quite a bit less risky than just holding the Jan 12 $27.50 calls as I orginally intended, where my max profit is unlimited, but my max loss is also 100%.
Any of you write spreads? I have to upgrade my Etrade account from level 2 to level 3 to even be able to do this...even though as I pointed out, the spread seems to have less risk than buying a call (which you can do in level 2).