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CREDIT SPREADS ON STOCK INDEXES

CREDIT SPREADS ON STOCK INDEXES. WHY SELL CREDIT SPREADS?. Non Correlation to Traditional Investments Limited Risk Ability to take advantage of time. S&P500 (SPX) Stock Index Chart. S&P100 (OEX) Chart. Lih ; oliuyt. S&P500 Futures Index Chart.

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CREDIT SPREADS ON STOCK INDEXES

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  1. CREDIT SPREADS ON STOCK INDEXES

  2. WHY SELL CREDIT SPREADS? • Non Correlation to Traditional Investments • Limited Risk • Ability to take advantage of time

  3. S&P500 (SPX) Stock Index Chart

  4. S&P100 (OEX) Chart Lih; oliuyt

  5. S&P500 Futures Index Chart

  6. WHY TRADE FUTURES BASED OPTIONS INSTEAD OF STOCK BASED • Lower Margins = More leverage • Flexibility with the use of Futures Contracts

  7. Margin RequirementsStock based vs. Futures based NAKED PUTS AT THE MONEY Examples Margin Requirements • Naked Options • (2 months out) • Index at 1075 • Stock Index • Short at the money put • 5 SPX 1075 put 1075 x 500 x 15% = $80,625 • strike price x index multiplier x 15% = • Futures Option • Short at the money put • 2 S&P500 1075 puts SPAN requirement = $48,000

  8. Margin RequirementsStock based vs. Futures based • NAKED PUTS 100 POINTS OUT OF THE MONEY • Naked Options • (2 months out) • Index at 1075 • Stock Index • Short put 10% out of • The money • 5 SPX 975 put 975 x 500 x 10% = $48,750 • strike price x index multiplier x 10% = • Futures Option • Short 10% out of • The money • 2 S&P500 975 puts SPAN requirement = $33,000

  9. Margin RequirementsStock based vs. Futures based • CREDIT SPREADS OUT OF THE MONEY • (2 months out) • Stock Index • Short 5 SPX 950/900 • April put Spread (50 x 500) – 2,500 = $22,500 • (width of spread x multiplier) – premium • Futures Option • Short 2 S&P500 • 950/900 April • put spreads SPAN requirement = $7,700

  10. CREDIT SPREAD EXAMPLES • ALL PRICES AND MARGINS ARE BASED ON THE CLOSE FROM THURSDAY, FEBRUARY 11,2010 • THE EXAMPLES DO NOT INCLUDE COMMISSION AND FEES

  11. SELL PUT CREDIT SPREADS • Sell April 950/900 put credit spreads • Premium: 4.4 points or $1,100 • Margin requirement: $3,900 • Maximum Risk: 45.6 points or $11,400 • Expiration Date: April 16, 2020 • Current level of the S&P500 1075 • Market was last at 950 in August, 2009

  12. SELL CALL CREDIT SPREADS • Sell April 1160/1200 call credit spreads • Premium: 4.6 points or $1,150 • Margin requirement: $4,600 • Maximum Risk: 35.4 points or $8,850 • Expiration Date: April 16, 2020 • Current level of the S&P500 1075 • Market was last at 1160 in October, 2008

  13. SELL PUT AND CALL CREDIT SPREADS • Sell April 950/900 put credit spreads • Sell April 1160/1200 call credit spreads • Premium: 9 points or $2,250 • Margin requirement: $4,000 • Maximum Risk: 41 points or $10,250 • Expiration Date: April 16, 2020 • Current level of the S&P500 1075

  14. COMPARING SPREADS FOR DIFFERENT MONTHS • The same spread for different months. • March 950/900 Put Credit Spread • Value: 2.2 points or $550 • Margin requirement: $4,400 • Exp. date: 3/19/2010 (1 month) • April 950/900 Put Credit Spread • Value: 4.4 points or $1,100 • Margin requirement: $3,900 • Exp. Date: 4/16/10 (2 months) • May 950/900 Put Credit Spread • Value: 6.4 points or $1,600 • Margin requirement: $3,400 • Exp. Date: 5/21/10 (3 months)

  15. COMPARING SPREADS FOR DIFFERENT MONTHS • Similar premium for different months • March 1000-950 Put Credit Spread • Value: 4.6 points or $1,150 • Margin requirement: $4,650 • Exp. date: 3/19/2010 (1 month) • April 950/900 Put Credit Spread • Value: 4.4 points or $1,100 • Margin requirement: $3,850 • Exp. Date: 4/16/10 (2 months) • May 925/875 Put Credit Spread • Value: 4.9 points or $1,225 • Margin requirement: $3,200 • Exp. Date: 5/21/10 (3 months)

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