13 to 310, our spread will be worth. No matter what happens to the price of the stock, the worst-case scenario is that the spread expires worthless. The unexpected popularity of the shocking new Eel McNugget propels Mickey D's stock to a whopping 110 in January. Fool contributor John Rosevear owns shares of Apple, but does not hold any of the other companies mentioned.
They actually have a very high probability of losing. According to financial theory any riskless position will earn the risk free rate, which right now is almost nothing, nada,. The first step is to choose a suitable stock, a company you like, but not one that's likely to see major growth. Everything in between those prices provides us with some profit, with the maximum coming if the stock settles right at the strike were short. The stock takes a nosedive. And if we had bought a put today at the close we would pay the ask, which.90/share, or 9190 total. Standard options contracts represent 100 shares of the stock, so this equals 870 per spread. How could this play out? While this presents an opportunity for a successful trade, it also means that losses will be magnified in the event that we are incorrect. This isn't to say you can't find another combination of stock and contract price that does better than a bank CD - but I doubt it will ever be better by very much and still difficult to monitor and align the trades in practice.
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