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Re: [RT] Managing covered call risk



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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 
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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 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 
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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
    <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: 
      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 
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