Is this a valid Bull Put Spread strategy?

[NAsX]

Hi guys,

So I recently purchased a OTM put on the XJO as my first option trade, and I was thinking today that I could turn it into a Bull Put Spread if later on my view of the direction changes, and just wanted to confirm if this is correct

My initial purchase of a 4200 put was 40, now the current bid price for a 4250 put is 47, say I go ahead and sell at the said price.

Bought 4200 -40
Sold 4250 +47
+7

Come expiration time, should the XJO be anywhere above 4250, I retain the +7pt premium. Should it fall anywhere below 4250, but above 4203, I don't lose anything for the short on 4250. If it falls below 4200, my long 4200 put will offset any loss. Ignoring any transaction fees for the moment.

Hence overall my risk in this trade would be 7pt.

Is this correct?

Thanks very much for any assistance.

 

[wayneL]

Hi guys,

So I recently purchased a OTM put on the XJO as my first option trade, and I was thinking today that I could turn it into a Bull Put Spread if later on my view of the direction changes, and just wanted to confirm if this is correct

My initial purchase of a 4200 put was 40, now the current bid price for a 4250 put is 47, say I go ahead and sell at the said price.

Bought 4200 -40
Sold 4250 +47
+7

Come expiration time, should the XJO be anywhere above 4250, I retain the +7pt premium. Should it fall anywhere below 4250, but above 4203, I don't lose anything for the short on 4250. If it falls below 4200, my long 4200 put will offset any loss. Ignoring any transaction fees for the moment.

Hence overall my risk in this trade would be 7pt.

Is this correct?

Thanks very much for any assistance.

Not accounting for transaction costs, and presuming you got that price for the short put, your risk is 43 points.

This is calculated by subtracting the nett credit received from the distance between the strikes.

i.e. 50 points less the 7 points credit.

When starting out, it's a really good idea to get a strategy modeller so you can see risk and reward graphically. www.hoadley.net and follow the links to the strategy modeller.

 

[NAsX]

Not accounting for transaction costs, and presuming you got that price for the short put, your risk is 43 points.

This is calculated by subtracting the nett credit received from the distance between the strikes.

i.e. 50 points less the 7 points credit.

When starting out, it's a really good idea to get a strategy modeller so you can see risk and reward graphically. www.hoadley.net and follow the links to the strategy modeller.

Thanks wayne, I knew there was something wrong with that one, just doing up a spreadsheet now. Thanks again!