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Dear Dennis:
The call that will wake your friend up will be a margin call. I do not
know if you could talk any sense to him before that, but try talk to his
wife, maybe you can explain her consequences of homeless living under
the freeway bridge with children.
Yours, Alex.
> "Dennis L. Conn" wrote:
>
> Hello all,
>
> I'd appreciate some input from those experienced in the strategy of
> selling naked puts on stocks that are about to split. A friend of mine
> is convinced that he can pursue this strategy with almost no risk to
> his account - hey, it worked on paper, right? After all, stock splits
> make the price go up, right? Apparently, this is the assumption on
> which the premise is based - I can't seem to explain why a twelve-year
> bull market (let's not quibble) might skew his back-testing.
>
> He has no experience in trading (naturally), and I've never done
> stocks - so I can't seem to convince him that his idea of "rolling
> out" to the next month's options and selling more, may entail not only
> some risk, but possible account devastation, given a prolonged
> downtrend.
>
> Now he's convinced himself to give up twenty-five years of building an
> insurance business in order to daytrade his way to wealth by year's
> end! At least he's using one of the better systems for online trading
> that I've seen recommended here lately, but come on! Today he found
> himself forced to roll out to June options, and tells me he never
> loses! I remember when I thought the same way at first, and how
> quickly retribution followed...
>
> Can someone please give me something I haven't thought to say that
> might make him wake up? Or is this automatically going to fulfill his
> widest get-rich-quick fantasies as he believes? I mean, hey, if it's
> that easy, I'll give up commodities and sell a passel o' puts
> tomorrow!
>
> What happens if the holders of those puts exercise them? I'm pretty
> sure it's going to do the same thing to him as selling silver calls in
> the Buffet rush did to me when I first tried writing options (duh).
> Anyone out there with some practical advice they'd care to offer?
>
> Dennis C.
> dlc@xxxxxxxxx
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