11.06.08
My First Spread
I became interested in option spreads several years ago after reading the excellent series of articles written by Greg Donio. Last month I put on my first spread, a December 105/100 vertical put spread against AAPL. I’m not what you’d call an aggressive investor, so I built the spread with a single contract. My total out of pocket cost, including commissions, was $196.50.
After falling the past couple of days, AAPL touched below $100. Following Mr. Donio’s advice that when the stock price touches the exercise price of the short end of the spread it is time to close out, I did so. In the course of 7 days, the spread between the 105 December Put and the 100 December Put had widened to $275. I closed out my position for $263.50 after commissions for a total gain of $67.00.
I’m sure anyone who does this for a living would not consider my gain very impressive in absolute dollars, but I’m still learning and becoming comfortable with this whole investing thing. I wanted to put some ideas into practice with minimal risk to myself. Also, a $67.00 gain on an initial investment of $196.50 is a bit over 34% net and annualizes to an over 1,777% return. I would be a very happy investor to realize even 1/20th of those gains on a regular and consistent basis.