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Sure!! Here is a reasonable strategy. Sell the Sept
xyz 50 put at 5. Buy a June xyz 40 put at 1/2. You take in a credit of
$450 minus commissions. If xyz announces chapter 11 and opens at 20,
instead of taking a $3,000 hit your loss is locked in at 10 points.
Disaster aside... When the June expiration comes along, you re-evaluate
the position and either close all the position with a profit, or buy
the July 40 or 45 puts (hopefully at 1/2 or lower) and wait for
September.
Bottom line... DON'T GO NAKED. It isn't worth the risk.
Gary
--- "Dennis L. Conn" <dlc@xxxxxxxxx> 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
>
<HR>
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<META content="text/html; charset=windows-1252"
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<META content="MSHTML 5.00.2314.1000" name=GENERATOR>
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<BODY bgColor=#ffffff>
<DIV>Hello all,</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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.</DIV>
<DIV> </DIV>
<DIV>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...</DIV>
<DIV> </DIV>
<DIV>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!</DIV>
<DIV> </DIV>
<DIV>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?</DIV>
<DIV> </DIV>
<DIV>Dennis C.</DIV>
<DIV><A
href="mailto:dlc@xxxxxxxxx";>dlc@xxxxxxxxx</A></DIV></BODY></HTML>
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