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<SPAN
class=083382120-13032002>Chris,
<SPAN
class=083382120-13032002>
yes,
I would. IMO, this so-called cash-secured put selling should be handled just
like any other position. If, for instance, the underlying stock breaks a
support line, the naked puts will bleed real money along with the underlying.
Why should you defray the transport costs? Take a small loss on the short put,
get out, and when your stock seems to have settled near a reasonable support
level, then sell those puts again.
<SPAN
class=083382120-13032002>
<SPAN
class=083382120-13032002>"Primum nil nocere" - wasn't it Hippocrates who said
that? The physician's first duty is not to inflict additional harm upon the
patient. The trader's first duty is to keep the capital
intact.
<SPAN
class=083382120-13032002>
<SPAN
class=083382120-13032002>Regards,
<SPAN
class=083382120-13032002>
<SPAN
class=083382120-13032002>Michael Suesserott
<SPAN
class=083382120-13032002>
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
<FONT face=Tahoma
size=2>-----Ursprüngliche Nachricht-----Von: Chris Schaaf
[mailto:cschaaf@xxxxxxxxxxxxx]Gesendet: Wednesday, March 13, 2002
21:11An: realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT]
Managing covered call risk
Mike,
If you sold naked puts, and were interested
in owning the underlying stock, would you still use a stop order to buy back
the puts?
Thanks,
Chris
<BLOCKQUOTE
style="PADDING-RIGHT: 0px; PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000000 2px solid; MARGIN-RIGHT: 0px">
----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
<A title=MikeSuesserott@xxxxxxxxxxx
href="mailto:MikeSuesserott@xxxxxxxxxxx";>MikeSuesserott@xxxxxxxxxxx
To: <A
title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Wednesday, March 13, 2002 3:01
PM
Subject: [RT] Managing covered call
risk
Steve,two things. Suppose you own GE stock and want
to stay with it for the restof your life, or at least for the long term,
then selling covered GE callsmakes sense. Then these short calls will
give you additional income on stockyou want to keep
anyway.Otherwise, it is not be advisable to use this strategy which
will only makeyour broker happy. It is madness to purchase stock just
for the purpose ofselling calls against it, because you can get the very
same risk/rewardposition by simply selling naked puts only.The
unsuspecting public does not understand this. Even older option
traderswho learned their trade when there were no puts in existence,
don'tunderstand this sometimes. They willingly fork over capital and
additionalcommissions because there is an abiding misunderstanding that
covered callsare supposedly better protected than naked puts. Well, they
aren't. The riskis the same, because if the stock in the covered calls
positions goes south,it loses point for point as much as the naked put
does.Second, as to your question about managing that risk, this
depends on yourpain threshold. IMO, you should place stops in both
cases.If you sold naked puts, place a (mental or conditional) buy
stop on theputs.If you are in a CC position, place a sell stop on
the stock and aconditional buy stop on the calls.Don't think you
can really protect your capital by selling more calls. Manypeople have
found out about this the painful way, not only in 1987 and 1989,but also
last year.Regards,Michael Suesserott>
-----Ursprungliche Nachricht-----> Von: schnakeus
[mailto:schnake1@xxxxxxxxxxxx]> Gesendet: Wednesday, March 13, 2002
20:30> An: <A
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx>
Betreff: [RT] Managing covered call risk>>> Some of you
were talking about covered calls awhile back. How do most> of you
handle downside risk in the stock price? You own 100 shares of> XYZ
at $30. Say you sell a 32 strike a month out for $3. The stock> stays
the same or goes up. You keep the premium because of> deterioration
or because it gets called. If it goes down to $27> your'e even, in
theory, although call retains some value til exp. Of> course if it
tanks, you lose. What do some of you do to manage the> trade? Sell a
lower strike call? Have a GTC stop-sell on the stock,> then buy to
close? Any other methodology?> Opinions and ideas, Please and
thanks.>> Steve>>>> To unsubscribe
from this group, send an email to:> <A
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