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Hi Colin,
please be advised that the profit graph of this position (long 1000 QQQ,
short 10 QQQ Jun02 36 Calls) is *exactly* equivalent to short 10 naked QQQ
Jun02 36 Puts; you can use any option analysis software to verify this.
The differences:
your combined position has a large amount of capital - some $50,000 - tied
up (stock price plus margin); furthermore, the ITM calls may be subject to
early assignment.
The equivalent naked puts would have only about $ 4,000 tied up at current
prices; no immediate assignment risk exists because the puts are OTM.
To sum up, the option strategy you asked to be discussed is a more expensive
way of selling naked options. It is true that the sale of naked options can
be very lucrative, but the (nearly) unlimited downside risk is to be
considered also. I for one wouldn't want to take it.
Best regards,
Michael Suesserott
> -----Ursprüngliche Nachricht-----
> Von: cwest@xxxxxxxxxxxx [mailto:cwest@xxxxxxxxxxxx]
> Gesendet: Tuesday, January 15, 2002 19:51
> An: Omegalist
> Betreff: please critique this strategy
>
>
>
> Not too long ago a probable and/or realistic annual return that could be
> expected was discussed on the list and I believe the consensus
> was that not
> more than 40% p.a. could realistically be expected, barring excessive risk
> and an extraordinary "banner" year. I'm raising a strategy for discussion
> that has the potential to exceed 40% p.a. that also encompasses several
> "trading safely" features, if you will, and can usually support
> quite large
> fills with little slippage.
>
> The goal of the strategy is to sell rich covered call premiums that are
> deep-in-the money. In the example I've used QQQ and QQQFJ (Jun'02
> 36 call).
> Not that the latter is the richest, it's just an example. The strategy
> includes borrowing against the QQQ units or shares either through a margin
> account or privately.
>
> The calculations of this strategy can be viewed at the following link. I
> didn't include them in the email because the listserver at
> eskimo.com seems
> to "object" to formatting, html and most attachments.
> www.traders2traders.com/myfiles/cwest/QQQexample.htm
> <http://www.traders2traders.com/myfiles/cwest/QQQexample.htm> .
> (Although NS
> will probably screw the formatting anyway :-)). BTW, if anyone needs some
> space for a time at ../myfiles/yourname/, they're welcome. There are a few
> users already.
>
> I look forward to any comments that may expose any not so obvious
> floors in
> the strategy or suggestions to improve its return.
>
> Colin West
>
>
>
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