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Hello Gitanshu,
by selling calls he would be collecting premium, he would be selling
forward his right to own the stock at a higher price. if the stock he
bought at 60 went to 70 would he have been happy? yes lets hope so -
knowing that you would be happy if the 60 stock went to 70 - why not
sell someone the right to own the stock at 70 and above - for that he
would get a credit to his trading account of whatever the value of
the call would be. i agree at some point he should have just thought
about getting short - but this is a way to prolong a loosing trade and
offset the open trade loss (drawdown) by collecting the premium.
this should not be confused with buying a call which would only worsen
the position he is in.
when the sp's were trading at 450 i had a bright idea it would go to
700 so i used options to continually hold a long position - without
suffering all the drawdown that would have resulted in the naked
future alone. the same applies to stocks and trading a short position
of the actual you would sell a put against your short position
what they don't tell you is that options have a expiration day and
thats what all option sellers have working on the side. theoretically
with deep pockets you could structure very high success rate.
m
GB> How will selling calls help?
GB> If MU goes to $20, what use are the calls sold with stock at $60?
GB> If one keeps selling calls as stock drops... why not just go short/flat
GB> instead of deeper into the hole?
GB> Gitanshu
--
Best regards,
Mark Brown mailto:markbrown@xxxxxxxxxxxxx
Y = Offset + Amplitude * sin(Frequency * X)
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