Are Your Long Trades Hedged Like Our Long SPY Call?

Yesterday we employed a Debit Spread Hedge in the Weekly Trading Service by selling a call against an existing long call. Creating a Debit Spread Hedge is a great way to lock in profits and reduce risk exposure. It is a strategy we use a lot as it can hedge a trade that is going against us as well as one that is working for us; the best of both worlds! However, we have come to understand there is some confusion about what the Debit Spread Hedge strategy really does and how it works. For example, take the following inquiry: "Yesterday you bought the SPY CALL, which appeared to be up at one time 70 cents from the original purchase price of $2.90. By selling the SPY CALL, you have capped the maximum one could make down to 40 cents. Rather than create the spread, wouldn't it have made more fiscal sense to just sell the SPY CALL purchased yesterday? I know you can't time it to make sure that we get the maximum 70 cents profit of today's high, but I would think we definitely could have already locked in the 40 cents that we are now maxed at making." To address the $0.70 profit vs $0.40 question, by looking at the SPY's intraday trading chart yesterday you will see that for most of the day the long call was actually at break-even or even underwater from what we paid for it. The $0.70 profit was only available for a small window of time during the opening gap up that quickly faded after about 30 minutes. More importantly, the Debit Spread Hedge has reduced our capital risk exposure by 80%, greatly reduced our break-even point, and all while still providing a profit opportunity in excess of +75% for the trade. To provide education on how the Debit Spread Hedge reduces risk and locks in gains we have provided the following resource available on the www.BookingAlpha.com homepage: How To Hedge Long Calls Or Puts With Debit Spreads Thanks to everyone and have a great day!!!