User 305589

Nothing Is Ever Truly 'Off the Books' in the Financial World

I agree with most of the article - though i can't make any sense of the author's long position in ABK. After taking massive hits from their misguided insurance on cdo and mortgage papers the monolines face a potentially terminal threat from quickly deteriorating municipal finances. No other than Warren Buffet stated just a few months ago, that he wasn't even sure whether the muni-insurance business would really be profitable in the long run. And he talked about his freshly started muni-insurance arm, which has charged far higher premiums than abk and mbia ever did! the common stock of the former monoline insurers are tricking time bombs that could implode anytime. It may pay off, to hold some of their bonds, but the common shares offer an awful risk-reward profile imho.

Option Spreads With Large Upside and Limited Downside

hm, let me get this straight: you talk of 'large upside and limited downside' - yet when looking at your vertical call spreads that you suggest, you have an upside of 108-150% and a downside of - 100%(!!)
I am myself doing a variety of vertical call spreads as well as calendar spreads, but frankly, your suggested trades look more like a gamble.
Your strike prices are so precariously close to each other and at the same time mostly out of the money and pretty near to expiration. For instance, the SPY calls with 92 strike have only a slightly higher probability of expiring in the money than have the 93s. It's basically a coin toss, imho.

I do like call spreads, though, but I use them either with long term options for stocks that are grossly undervalued imo, and then I go quite deep out of the money for 3.1 or 4:1 upside/downside.
Or I may target stocks which I consider to be a t rock bottom valuations with very little downside left and then chose calls that are in the money while selling calls at or slightly out of the money.