When you list a certain credit for a spread but the stock moves up and the spread is no longer there, do you continue to chase it or pass? (August 22, 2000)
Great question. Spreads are a bit different beast as we let the broker work the spread for us, selling the put and buying the put to get the right spread. We try to get at least 1.25 out of a spread at a minimum unless there are just days left. With a month left, if we cannot get 1.25, we will usually just pass on the play. We don't like more than four weeks, and prefer two weeks. It gets harder to meet the criteria of a good-looking breakout move, strong stock, and right net credit the closer you are to expiration, but we just don't like messing around with spreads. We like to buy them and forget them if at all possible. Thus we are pretty discriminating and won't chase them below 1.25 unless there is no time left and we like what we see. If we can make 20% in a week, that will work, but for longer time periods, we want that 25% or more.
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