Mercury Capital Management's Monthly S&P Income Generating Program

The basic strategy of MCM’s program is to attain profits by selling options on the S&P stock index, balancing collection of premium with risk management. This will be executed with the use of selling option spreads, with the objective that both options expire worthless and all the premium collected from the sale is retained as profit. It is a way to take advantage of time decay in a limited risk strategy.

Mercury Capital Management’s Monthly S&P Income Generating Program

What is a Credit Spread?

A credit spread consists of two options of the same type (2 calls or 2 puts) and the same contract month expiration. You sell one option at a particular strike price, which you collect premium for, and you buy another cheaper option at the same time. This limits your risk on the option you sold. Because you are selling a more expensive premium option than the one you are buying, you take in a credit. Your risk is the difference between the two strike prices, less the net premium you collected, plus commission and fees for placing the trade. By placing the trade as a spread, you never expose yourself to unlimited risk.

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