Anticipations
A quiet, sideways movement in the underlying asset is anticipated.
Characteristics
Max profit - limited.
Max loss - limited to the net debit required to establish the position.
Creating
Sell a put option(near-term option) and buy a put option(far-term
option) with
the same strike price but the later expiration date.
Example
Security(QQQ) price - $35
Short 1 QQQ 35 Jan Put - $1.6
Long 1 QQQ 35 Feb Put - $2
Max loss = $(2 - 1.6) * 100 = $40
Option Position at Expiration
Comments
This strategy is based on the theory that over time the value of the near-term option will erode faster than the far-term option.
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