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Understanding LEAPS: Using the Most Effective Options Strategies for Maximum Advantage by Marc Allaire

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CHAPTER 11Bull and Bear Spreads

The use of a spread transaction, or a spread, is a strategy that is growing in popularity. And rightfully so. Spreads can help minimize the effects of buying expensive time premium and also negate some of the time decay inherent in buying options.

A spread is the purchase of a call or put option and the simultaneous sale of another call or put option. Except for time spreads (also known as calendar or horizontal spreads), which will be covered in this chapter, most spreads involve buying and selling options in the same month—for example, buying a January 50 LEAPS call (of 2004) and writing a January 60 LEAPS call (also of 2004).

A BULL SPREAD USING LEAPS

An investor likes the shares of Qualcom (QCOM). (OK, we used ...

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