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In any zero premium spread the risk is almost always from early exercise.
Which is a material risk. In effect your are financing the risk of early
exercise. You don't get to do an offsetting exercise until the next day when
it may be(and often is) too late.
-----Original Message-----
From: John Cappello [mailto:jvc689@xxxxxxx]
Sent: Wednesday, January 01, 2003 11:49 AM
To: Realtraders@xxxxxxxxxxxxxxx
Cc: MedianLine@xxxxxxxxxxxxxxxx
Subject: [RT] Zero Premium Vertical Diagonal Puts
At one time there was a poster on these lists who was banned for his
lengthy controversial ridiculing of others. His claim to fame was
Zero Premium Vertical Diagonal Puts as I later found out. Plus he was
always "calmly" making money while all of us were stressed out and
with closed minds.
He claimed that if the difference were only 2 to 3% the risk of loss
is low and the probability of gain is high. He also espoused adding
spreads as the prices changed.This explanation and my investigation
is by no means comprehensive...
I followed it for 2 months and was not impressed which may not have
been long enough. Any one else have any experience with these and
what has your impression been.
They can also be termed zero premium calendar put spreads as I saw
from the literature. I believe the above unnamed person created his
own name for this method.
Any ideas,
John
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