What does this stock investing jargan mean?

If you are looking for a hedged play on F the stock seems like it could be a candidate for a September out-of-the-money bull-put credit spread below the 9 range.

What does "out-of-the-money bull-put credit spread below the 9 range" mean?

Public Comments

1. First you need to know what a put option is. A put option is a contract which gives the buyer of the contract the right, but not the obligation, to sell something for a fixed price (called the strike price) up until the expiration date of the contract. In this case the something he could sell would be 100 shares of Ford stock for each contract he bought. The seller (writer) of the contract has the obligation to buy the stock at the strike price if, and only if, the buyer decides to exercise the option.

A spread is a combination of two or more positions (called legs) with the same underlying, in this case Ford stock.

A credit spread is a spread where money is added (credited) to your account at the time you open the spread.

A put option is "out of the money" if the strike price is lower than the current market price of the stock.

An example of the type of spread he is talking about would be to buy 10 put options with a strike price of $6 per share and sell 10 put options with a strike price of $8 per share. Although he did not explicitly say so, I assume he means a vertical spread, in which case all the options would have to have the same expiration date.

Because the put option with an $8 strike price will be more expensive than a put with a $6 strike price I would receive more money from the puts I sold than I paid for the puts I bought, assuming I opened the spread.

This is a spread with a limit on both the amount of profit possible and the amount than could be lost.

To learn more about a bull put spread see

http://www.cboe.com/Strategies/WeeklyArchive.aspx

and click on "Bull Put Spread" (December 29, 2009)