Once both Calls are In-The-Money, our profit will always be limited by difference between strike prices of 2 Calls, minus amount we paid at start.

As a general rule, once stock value goes above lower Call (the $50 Call in this example), we start to earn profit. And when it goes above higher Call (the $55 Call in this example), we reach our maximum profit.

So why would we want to perform this Spread?

If we had just done a simple Call option, we would have had to spend $1 required to buy $50 Call. In this spread trading exercise, we only had to spend $0.75, hence - limited risk - expression. So you are risking less, but you will also profit less, since any price movement beyond higher Call will not earn you any more profit. Hence this strategy is suitable for moderately bullish stocks.

HORIZONTAL SPREADS

We now look a Horizontal Spreads. Horizontal Spreads, otherwise known as Time Spreads or Calendar Spreads, are spreads where strike prices of 2 options stay same, but expiration dates differ.

To recap: Options have a Time Value associated with them. Generally, as time progresses, an option's premium loses value. In addition, closer you get to expiration date, faster value drops.

This spread takes advantage of this premium decay.

Let's look at an example. Let's say we are now in middle of June. We decide to perform a Horizontal Spread on a stock. For a particular strike price, let's say August option has a premium of $4, and September option has a premium of $4.50.

To initiate a Horizontal Spread, we would Sell nearer option (in this case August), and buy further option (in this case September). So we earn $4.00 from sale and spend $4.50 on purchase, netting us a $0.50 cost.

Let's fast-forward to middle of August. The August option is fast approaching its expiration date, and premium has dropped drastically, say down to $1.50. However, September option still has another month's room, and premium is still holding steady at $3.00.

At this point, we would close spread position. We buy back August option for $1.50, and sell September option for $3.00. That gives us a profit of $1.50. When we deduct our initial cost of $0.50, we are left with a profit of $1.00.

That is basically how a Horizontal Spread works. The same technique can be used for Puts as well.

For more information on spread trading, visit:

http://www.option-trading-guide.com/spreads.html

Some unauthorized MEWA promoters eventually pay benefits, but usually only for small claims--and only to lure more employers into doing business with them. More often, these phony operations often shut down without notice, often leaving millions of dollars in unpaid claims behind, a trail of uninsured employees and beneficiaries, and devastated small businesses with no recourse but bankruptcy.

This practice is unfair and deceptive—a third-degree felony or first-degree misdemeanor in Florida, for one—and carries serious penalties for anyone who is caught, tried and convicted.

Too Good to Pass Up?

In spite of all that, these plans can appear to be attractive alternatives to business owners who have given up on buying traditional health insurance. And opportunity to sell such low-cost plans can be too enticing to pass up for otherwise honest, if unsuspecting insurance agents. But unless they keep their guard up, employers and agents have no way of knowing that these too-good-to-be-true sounding plans are, indeed, bogus.

Heed Warning Signs

Businesses having difficulty obtaining health insurance coverage need to look before leaping at offers that sound a bit too attractive. Legitimate MEWAs can be a cost-effective way to get health care, but to avoid being taken, business owners (and producers) are well advised to get references, get details, and talk to their legal advisors. Ask questions…

• Be skeptical if health insurance coverage that boast unusually low premium rates.

• Promotional materials that seem deliberately to avoid word “insurance” or any insurance terms; or offers to waive printed underwriting guidelines to enroll employers in plan.

• A promoter wants to set up a self-funded plan that is "reinsured" by an unlicensed insurance company; or an insurer has "Ltd." or "S.A." in its name. This usually indicates an offshore company that could spell trouble.

• A plan claims to be exempt from state regulation because of its religious orientation or some other constitutional protection; or plan accepts people without a medical exam and those with serious health conditions that most plans would reject.

• Participating employers have to join an "association" or "union" to obtain coverage; or health care providers complain that their bills have not been paid.

Look Before You Leap

Here’s how to make sure a health plan is being marketed by a licensed insurer:

• Ask for insurer’s name and check benefits booklet to see if it names a licensed insurers.

• Verify claims that a reputable insurance company is backing plan by contacting company.

• Contact insurance department to verify that insurance company backing MEWA is licensed in your state.

If you’ve been approached by someone selling what you suspect is fraudulent health care coverage by someone you think may be an unauthorized insurer--or know an SBO who bought one these plans--report it to state insurance department that has jurisdiction.

Want More? Send questions and comments to w.willard3@knology.net.