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Hello Daniel,
Tuesday, February 19, 2002, 5:38:35 AM, you wrote:
DG> When was selling covered calls (which is indeed similar to selling
DG> puts) discussed?
I went back and re-read his post you are correct. However I have
trouble understanding the method. He sells calls, then understands
the risk so he sells tons of puts. Did he also have tons of calls or
a half a ton of calls. I think he has been lucky for 7 months?
What's the exact method or is it seat of the pants? Besides that Ric
brings up some very interesting points about the whole thing and read
Tom Bowen's most recent post. Especially the part about the audited
(independently)track record. If I only had a nickle for every bright
star that has claimed to have made "Tons of Money" trading.
DG> I thought Ben was talking about a strategy that was more like a
DG> collar, if I understood it correctly. It seems to me that Ben's
DG> strategy is based on differences between real price movements and
DG> the pricing of options, which is usually done on the basis of
DG> probabilistic models. Whether you believe it works or not, his
DG> downside is limited, which makes it look a lot different than a
DG> naked short put -- more like a bull put spread.
Bunk his downside is limited!, the way the post reads he had more puts
bought "Tons" then calls. Either way he could have lost on the trade,
contrary his broker is smiling.
DG> Regards
DG> DanG
What Ric writes below is an eye opener! He is absolutely correct!
People can get crazy I tell you trying to avoid risk but rather
causing self fulfilled prophecy of doom upon themselves!
DG> ric ingram wrote:
>>
>> Hi,
>>
>> But some people have a real perception problem - and do not know it.
>>
>> It is only reasonable to point out that given that you intend to hold the
>> underlying, selling a covered call actually reduces your exposure to a big
>> fall. So if you were going to hold the underlying anyway, selling covered
>> calls can be considered a conservative strategy.
>>
>> However if you do not hold the underlying or do hold it but do not intend
>> to keep it, buying the underlying and selling a covered call is the same as
>> selling a naked put.
>>
>> Paradoxically, selling naked puts is actually lower risk than holding the
>> underlying if you allocate the same capital as you would have done for
>> holding the underlying.
>>
>> But rationality is rarely a bedfellow with fear or greed.
>>
>> Unconditionally yours, Ric.
>> www.traderscalm.com
--
Best regards,
TheQuant mailto:thequant@xxxxxxxxx
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