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Welcome to your source for answers to questions about option concepts, strategies, and terminology. A new question and answer is published each week. To view the Ask the Institute archives, click the "Ask the Institute Archive" link below.

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This week's question:

DATE: April 7, 2008

QUESTION:
If I were to trade a spread, long a 110 call and short a 120 call for a debit of 3.40. Could I place a sell order for a credit of 6.60 and wait for it to hit the sell order assuming that is the maximum return on my investment?

ANSWER:
You can enter a limit order to sell the 110 - 120 call spread for $10 (you paid $3.40, this would give you a profit before commission of $6.60).There is no incentive for an investor or professional to buy this from you at $10, because what could one make by buying a $10 point spread for $10?Sending an order in doesn't hurt, but I would not expect it to be filled at $10, even on expiration Friday.



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