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I do not understand why everyone is confusing the poor
man
keep it simple
if your call returns you $2 additional for
the stock but the stock goes down $4
then you still lost money
the answer is sell a call get $
2 credit
then go out and buy a put for 1/2 of your
credit
now you are fully protected and still have nice
income
(works best on qqq as strike prices are
1$ apart)
Ben
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----- Original Message -----
<DIV
style="BACKGROUND: #e4e4e4; FONT: 10pt arial; font-color: black">From:
Ray
Raffurty
To: <A title=realtraders@xxxxxxxxxxxxxxx
href="mailto:realtraders@xxxxxxxxxxxxxxx";>realtraders@xxxxxxxxxxxxxxx
Sent: Wednesday, March 13, 2002 4:22
PM
Subject: Re: [RT] Managing covered call
risk
Hi Steve,
You are right about naked puts being the same as
covered calls except in two regards. In most (all?) IRA's selling naked
puts is not permitted. Secondly for small accounts with limited margin
or accounts not approved for margin selling naked puts or calls is not
permitted.
In these cases, IMHO, selling covered calls is
much better than buying puts or calls.
Good luck and good trading,
Ray Raffurty
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----- 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: 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.>>
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