Saturday, November 2, 2013

Bear Credit Spreads

If you have a neutral or bearish bias on the underlying futures market, you

could use bear credit spreads. In this strategy you sell a close-to-the-money
call and buy a further out-of-the-money call. The idea is to collect premium
in a steady or declining market as time decay decreases the value of the op-
tion. The purpose for doing a spread like this is to capture some premium
and to limit your risk in case of an extremely unpredictable adverse market
move. Your risk is limited and so is your profit. This is the exact opposite
strategy of the bull credit spread. A margin requirement or good-faith de-
posit may be required for this trade as well.




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