I've had a few comments go by questioning my methodology when deciding on a decent risk/reward for my positions. In my usual spirit of brow-beating, all of you naysayers are woefully uninformed. (Read: WRONG).
So for those of you who just buy stock: what do you need to make money?
1. you need the stock to go up and then you need to SELL it.
2. you need the stock to pay a dividend if it doesn't go up.
3. if the stock goes down, you're boned.
How much can you lose? ALL OF YOUR MONEY!!!
So what happens if I do one of my spreads on the same stock?
1. if the stock goes up, I make money
2. if the stock goes nowhere I make money
3. if the stock goes down 10-15% I MAKE MONEY
4. If the stock goes down MORE than 20% I can "kick the can down the road" if I expect the stock to recover.
5. if the stock goes to ZERO, I only lose a maximum of $100-500 per contract. (Depending on the "width" of the spread.
Additionally, I do NOT have to sell the position to make money. It will EXPIRE on it's own (if I choose not to close it) if the stock has not fallen more than 15%
So my risk/reward is VASTLY superior to the buy and hold only.
Stay HUNGRY my friends.