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I am aware of that
however I was trying to keep it in the
KISS
way for a beginner
Ben
<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 5:18
PM
Subject: [RT] Managing covered call
risk
<FONT face="Trebuchet MS"
color=#000080>Ben,
<FONT face="Trebuchet MS"
color=#000080>
<FONT face="Trebuchet MS"
color=#000080>the strategy you suggest is not a covered call position.
Through the sale of this put you are changing the position into a vertical
credit spread (bull put spread). <SPAN
class=132535021-13032002>But if this
was the intended outcome, then this goal can be achieved much more
simply.
<FONT face="Trebuchet MS"
color=#000080>
<FONT face="Trebuchet MS"
color=#000080>Suppose, at current prices, you are long 1000 QQQ. You sell 10
Apr 39 Calls at 1.00, and from that premium you buy 10 Apr 33 Puts at 0.50.
The price of this position is about $37,000. (about 18,500 in a margin
account).
<FONT face="Trebuchet MS"
color=#000080>
<FONT face="Trebuchet MS"
color=#000080>Now compare this to the completely equivalent position of simply
selling 10 Apr 39 Puts and buying 10 Apr 33 Puts. The net
margin on this position is about $3,700. No stock commissions are incurred,
either.
<FONT face="Trebuchet MS"
color=#000080>
<FONT face="Trebuchet MS"
color=#000080>Regards,
<FONT face="Trebuchet MS"
color=#000080>
<FONT face="Trebuchet MS"
color=#000080>Michael Suesserott<SPAN
class=132535021-13032002><FONT face=Tahoma color=#000080
size=2>
<SPAN
class=132535021-13032002>
<SPAN
class=132535021-13032002>
<SPAN
class=132535021-13032002> -----Ursprüngliche
Nachricht-----Von: profitok
[mailto:profitok@xxxxxxxxxxxxx]Gesendet: Wednesday, March 13, 2002
22:47An: realtraders@xxxxxxxxxxxxxxxBetreff: Re: [RT]
Managing covered call risk
<BLOCKQUOTE
style="PADDING-LEFT: 5px; MARGIN-LEFT: 5px; BORDER-LEFT: #000080 2px solid">
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
<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:
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:>
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