Replies to post #39900 on Options Wonderland

[farooq]

Dzielak51,

It is covered because I am long 2.50.
Difference between my long 2.50 and my short 5.00 is 2.50 so if at 2010 Jan stock price is at 5 or above and these contracts exercised then I will get 2.50.
If stock is below 5 then my shorts will not be exercised and I will keep premium plus I will get what ever is above 2.50.

I will have a loss if stock is below 2.50 in Jan 2010 expiration.

Spreads greatly reduce your carrying costs but they reduce you potential of higher profit also.

I hope it explain.

Farooq