The Bear Call Spread Part II
A couple days ago, we wrote apart part one of the short term income producing option strategy. We wrote about the generalities of the play and what it entails. The benefit of a play like this is being able to use time decay as your ally. We we are selling a call option just (OTM) and then buying one farther out, we are looking for expiration of both options and we keep the profit. In order for this to happen out timing has to be perfect so that the stock is not moving in the wrong direction.
Someone will buy that option from us because they think the stock is going to move upward. But we beleive the stock will not move up but either stay the same or move down. This is how the play is made. SO when is the best time to buy & sell the option? First of all, since this is a short term play, we want it to go less than 30 days. Using the Bollinger Bands, wait until the stock gets exactly to the top of the Band before you buy & sell. As we are in a downward pattern, the stock will bounce off the top of the Band and move down while we are waiting for time to expire. This is creating the maximum defectiveness for this type of income producing play.
Be patient and wait for the right timing.