Bull Spreads with Options

Thomas, all I can say is, for a first time options trader, you are one brave dude!!

I have never tried a bull spread. The only strategy I've tried is a straddle, which for those who might be interested in knowing is buying a call and a put on the same stock at the same strike price and for the same expiration dates.

However, in my case, with my first straddle, the darn stock traded sideways for quite a long time, so I ended up losing on the put and gaining very litttle on the call. The strategy was a good one, but I ran out of time and had to decide on getting out of the better of the two evils.

Now I just stick with straight calls. I might buy a put if there has been some bad news after hours, or at the start of the trading day. But nowadays, every experienced trader is also trying to short the same stock, thus driving the puts up, and making it harder for the little people like me to get in.

Good luck. Hope you get some feedback to your question.

Eliz.

> I just placed my first options trade, so I'm
> eager to see how it works out.

> I placed a BULL SPREAD on some May 2001 PPD
> Call Options.

> For those that don't know, a BULL SPREAD is
> where you buy options AND sell options,
> where the options are on the same security,
> at the same date in the future, but the
> strike price for the one you buy is lower
> than the strike price for the one you sell.

> To be specific, I traded call options for
> May 2001 in PPD at a strike price of 40 and
> 45.

> That means that if at May 2001, the share
> price of PPD is below 40, both are worthless
> and I lose all the money I paid.

> If however PPD is above 45, then what
> happens is:
> - On the option I bought, I make $5 + the
> excess over $45
> - On the option I sold, I lose the excess
> over $45

> So that means my MAXIMUM PROFIT is $5 (well,
> really it's $5 x 100 x the number of option
> contracts I buy, as each contract represents
> 100 shares)

> My question to the experienced option
> traders out there is -- If PPD share price
> goes up quickly so both options are in the
> money, should I trade out of the position
> early, or hold until expiry? Or what do you
> think should determine that?

> Regards,

> Thomas.