FAS Bull PUT Spread

Analyze the following example.

FAS: Sell Oct 15 Put & Buy Oct 13.33 Put

The margin requirements will be 15 - 13.33 = 1.67
Credit = .35

Return = .35/1.67 = approx 20% for 2 months if FAS at expiration does not close below 15 or goes down too much where someone may exercise the option & it gets assigned.

Max Risk = 1.67 - .35 = 1.32 (if FAS closes below 15 at expiration).

However, one thing to learn is that should a scenario occur whereby FAS would go below 15, then consider rolling out & rolling down.
Simply implying that close the position if needed at a loss & then open a new position, further down (lower in price) & far out (for example January) so that the NET CASH FLOW stays POSITIVE.



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