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I want to congratulate you for your presentation of the PCS trade.
I think it is one of the best examples of a well thought-out option
strategy and one that everyone can see and appreciate clearly.
I also think this trade has a very high likelihood of success.
It is a combination of a bull spread and a calendar trade with
the advantages of each.
In option trading I like to think that the market has 5 possible
places it can go: up a lot, up a little, stay the same, down a little,
and down a lot. This trade has 4 of the 5 possible market outcomes
in its favor. The only way you lose is if the market goes below 7,
and it would have to do that by August.
Caveats:
1. Odds are that the short call will be exercised, but you don't know
exactly when. What happens when it is? Does your broker have auto-
exercise which would take you immediately out of your leap? Is there
a lag time that would expose you to exercise risk?
2. This is a long term trade. Is your object to own the leaps for free
or to achieve success with this trade. Sometimes long term goals
can conflict with short term market action.
Have you selected this stock based solely on the Long/Short ratio
or do you have fundamental or technical reasons for your selection?
How do you scan for these trades?
Neal
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