$KLA-Tencor (KLAC) New Ratio Call Debit Spread in
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Posted On: 05/10/2017 3:12:46 PM
$KLA-Tencor (KLAC)
New Ratio Call Debit Spread in KLA-Tencor (KLAC):
Using a spread order, buy to open 1 KLAC June 16th $100 call and sell to open 2 KLAC June 16th $105 calls for a net debit of about $0.95.
A ratio debit spread is simply a way to lower the cost of buying options, as the two options that you sell to open (short) help offset the cost of the option that you buy to open. Therefore, this ratio call debit spread is a way to lower the cost of establishing a bullish call option trade. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a ratio debit spread; contact your broker directly for specific requirements.
Because you are short a naked call in this ratio call debit spread, one risk is that the underlying stock could unexpectedly move up sharply. If that happens, we would need to buy back to cover and close the naked call option for a loss.
The other risk due to the naked call is if the stock moves up sharply the call could be assigned. This means that for every 1 call option we sold to open (shorted), we would need to buy 100 KLAC shares on the open market at an unknown higher price and then sell the shares at the $105 strike price for a loss. So, this is inherently a higher risk play. Keep your positions small.
Exit if KLAC gets up to $105.
New Ratio Call Debit Spread in KLA-Tencor (KLAC):
Using a spread order, buy to open 1 KLAC June 16th $100 call and sell to open 2 KLAC June 16th $105 calls for a net debit of about $0.95.
A ratio debit spread is simply a way to lower the cost of buying options, as the two options that you sell to open (short) help offset the cost of the option that you buy to open. Therefore, this ratio call debit spread is a way to lower the cost of establishing a bullish call option trade. Many brokers will require the use of margin and/or a set amount of reserved capital to execute a ratio debit spread; contact your broker directly for specific requirements.
Because you are short a naked call in this ratio call debit spread, one risk is that the underlying stock could unexpectedly move up sharply. If that happens, we would need to buy back to cover and close the naked call option for a loss.
The other risk due to the naked call is if the stock moves up sharply the call could be assigned. This means that for every 1 call option we sold to open (shorted), we would need to buy 100 KLAC shares on the open market at an unknown higher price and then sell the shares at the $105 strike price for a loss. So, this is inherently a higher risk play. Keep your positions small.
Exit if KLAC gets up to $105.
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