Hello Investors,
Today in class we discussed the difference between probability of success vs risk/reward ratio. In the options market, if you get the benefit on one side, you give away something on the other side. With that in mind, we talked about strategies that can work in an environment where you feel that your probability of success is slightly higher than 50/50. And we entered into a trade on AMGN to demonstrate the concept.
Buy to open: AMGN April 19th (monthly) 270.00 strike put
Sell to open: AMGN April 19th (monthly) 267.50 strike put
Debit: 1.18
Max risk = 1.18 or $118.00 per spread
Max reward = 1.32 or $132.00 per spread
Have a great week!