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maybe an example will make everyone happy
buy 2000 qqq at 35
sell 20 April 36 calls at 2.4
buy 20 march 34 at .75
----- Original Message -----
From: "TheQuant" <thequant@xxxxxxxxx>
To: "Daniel Goncharoff" <realtraders@xxxxxxxxxxxxxxx>
Sent: Monday, February 18, 2002 8:53 PM
Subject: Re[2]: [RT] Selling Covered Calls
> 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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>
>
>
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>
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