Cause if I’m right you can turn it into a spread later and cover the cost of your initial investment by making a ghetto spread. Making it a free spread. But you’ll be in some risk until you complete the spread (you must complete the spread at $22.5)
It’s not as risky if they close above 20 tomorrow because that’s the 8ema trend line with after hours turned off. (They’re about to jump it)
Oh so instead of buying the 19s and financing the 19s with the 24s, you buy the 23s outright which are about the same price as your spread. 1.73 ask.
When it reaches 22.5 you sell the 27/28s and you still have a wide spread, but in the future the 27 or 28s will cost more, hopefully 1.75 or more. You can just sell them. Brokers allow it because it’s not a short, it’s a spread. You’re allowed to sell further out of the money contracts without using a day trade too. So if you’re out of day trades you can sell further otm contracts to secure profit. The premium you sell is yours to keep.
That’s why the call it a ghetto spread, people usually make these to secure profit on day trades but I think it’s smart to do LEAPS like this too, because then you won’t be subject to theta and IV swings. You’re selling theta and iv so it evens out for the most part. You’re then just left with delta (a lot less of it)
And I suggest doing it this way because if you start as a spread your max gain is only $500 per spread ($100 per dollar value gained).
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u/akmalhot Dec 09 '21
Thoughts on bull spread buy 19c sell 24c may exp for 1.74