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Guy Tann wrote:
> John
>
> I've seen similar strategies used trading futures. Used them myself many
> years ago without a lot of success. I've found it sort of like kissing your
> sister. Yes it does limit your risk, but it substantially limits your
> profits as well.
>
> Let's see if I understand you. If you write your call option at $15.00, you
> make $1,500. Then you would have to buy a call option further out at, let's
> say $10.00. That way you have nothing invested (you actually make $500 less
> commissions) and as long as the market moves the way you think it should,
> the further out calls should drop faster than the call you wrote. If the
> trade goes against you, you have at least limited your exposure since you
> own a call to effectively offset the one you wrote, albeit now under water.
>
> I guess that makes sense, but I'd have to think about it. My first thought
> is that as long as we're able to maintain our current probability of
> success, are we better off just buying the puts and calls that we want and
> not bother writing anything? I really don't know and I am trying to learn
> the best approach to use. Today I bought 10 OEXST at $17, while my brother
> selected OEZSR Puts.
>
> We'll have to follow this through.
>
> Guy
>
> Paranoia...you only have to be right once to make it all worthwhile!
>
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx [mailto:owner-metastock@xxxxxxxxxxxxx]On
> Behalf Of John Sellers
> Sent: Tuesday, June 20, 2000 11:23 AM
> To: metastock@xxxxxxxxxxxxx
> Subject: RE: Selecting options or writing uncovered options
>
> Please consider the placing of the writing of a call option say at value x
> and also purchasing a call option at 5 or 10 dollars higher in price to
> protect your position with a an approximate maximum loss. This strategy most
> brokers feel more protection and should make them more accommodating.
>
> This method can also be used to Puts also. Practice moderation in the
> beginning as incorrect positions are costly. I used this approach with OEX
> options in the past.
> -----Original Message-----
> From: owner-metastock@xxxxxxxxxxxxx
> [mailto:owner-metastock@xxxxxxxxxxxxx]On Behalf Of John Manasco
> Sent: Monday, June 19, 2000 3:20 PM
> To: metastock@xxxxxxxxxxxxx
> Subject: Re: Selecting options or writing uncovered options
>
> Guy
>
> Are you going to write options only on indexes or also on stocks? My broker
> requires $100,000.00 and lots of history to write naked index options.
>
> John Manasco
> ----- Original Message -----
> From: Guy Tann <grt@xxxxxxxxxxxx>
> To: Metastock User Group <metastock-list@xxxxxxxxxxxxx>
> Sent: Monday, June 19, 2000 2:49 PM
> Subject: Selecting options or writing uncovered options
>
> > List,
> >
> > Well, here I come again from our normal position of ignorance.
> >
> > We're planning on getting more involved with options. For our next sell
> > signal that could arrive any day now, we plan on writing SPX Calls and OEX
> > Calls in addition to buying SPX and OEX Puts. We have very little
> > experience buying options and have had beginners luck with our first 5
> > trades. Now we're going to get a little serious here and try to make a
> few
> > bucks.
> >
> > We've each budgeted $10,000 for buying options and another $10,000 as our
> > exposure writing options.
> >
> > Now, I'm busy reading my option book, like a good little student. Since
> we
> > lucked out with our previous trades we're feeling overconfident. :) I do
> > have a question regarding buying options (since I haven't gotten to that
> > chapter yet):
> >
> > How should I select what option to buy? Currently I select 'in the money'
> > options and look for option months that have a pretty large open interest.
> > Is there a formula or a decision process we can apply to pick the right
> > option month?
> >
> > In terms of writing uncovered options, my question is basically the same.
> > How do we determine which options to write? I guess, even more important
> > is, do we write options that expire out 3 months or would we write the
> near
> > month options? Again, since we're short term traders and will probably be
> > buying these back before they expire, my guess is that we should write the
> > near month.
> >
> > Additionally. my idea is that we should write 'in the money' options with
> > pretty good open interest. Again, I'm sure there is a methodology
> somewhere
> > that would help us make a semi-intelligent decision.
> >
> > Any recommendations or thoughts would be appreciated.
> >
> > Thanks,
> >
> > Guy
> >
> > Paranoia...you only have to be right once to make it all worthwhile!
> >
> >
> >
One difference I'm not sure has been mentioned in this thread is that because
of the limited exposure, for the same amount of equity, you should be able to
trade more contracts, so while your profit is limited per contract, you will
make that smaller amount on more contracts.
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