The whole reason I've moved my account here is so that I have the tools available to manage downside risk.  This month I've set up several bearish spreads, some credit and some debit.  Active bear credit spreads are:

• Allstate (ALL) - max profit for closing below MAR $50
• American Express (AXP) - max profit for closing below MAR $50
• Dow Jones Index - max profit for closing below MAR $132
• China Life (LFC) - max profit for closing below MAR $70
• Ebay (EBAY) - max profit for closing below MAR $30
• Electronic Arts (ERTS) - max profit for closing below MAR $50
• KL-Tencor - (KLAC) - max profit for closing below MAR $45

Active bear debit spreads include:

• Russell 2000 - max profit for closing below MAR $65
• Russell 2000 - max profit for closing below JUN $62
• Lululemon (LULU) - max profit for closing below MAR $25  woo hoo!

It's interesting how different these two spreads feel.  The debit spreads have less of a chance of profit, but the potential for a bigger profit.  The credit spreads have a much larger chance of a smaller profit. 

Even though the profit is smaller with the credit spreads, if you can exit your losers quickly and without regret, is seems like you should be able to get 3% a month on the money that you commit to cover the option requirements. 

Rivercity,

This is a great post. Well thought out and makes a lot of sense.

--Nicole Wachs

TradeKing Staff

For a list of my previous blogs, please click here.  

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