|
PureBytes Links
Trading Reference Links
|
Good point about it being the same as a naked short call. My security
is a future, not a stock, but the facts remain the same. Again thanks.
--- In realtraders@xxxxxxxxxxxxxxx, "Ray Raffurty" <r.raffurty@xxxx>
wrote:
> Hi Prosper,
>
> The strategy you are describing is called a covered put and is the
exact opposite of a covered call and is exactly the same as selling a
call naked but with higher commissions because it involves two
initial trades. It is used when your outlook on the stock is neutral
to bearish and has limited profit potential and unlimited loss
potential if the stock goes up.
>
> The maximum gain is:
> 1) The time premium received from the put. This occurs if the
put's strike is greater or equal to the short stock's sale price.
For example sell XYX short at $50 and sell a $50 (or higher) strike
put for $2.00. If XYZ moves below $50 at expiration the put would be
exercised and you would be forced to buy XYZ for $50, then
immediately deliver it to cover the shorted stock, therefore you
profit the $2.00 ($200.00 per contract) minus commissions.
>
> OR
>
> 2) The time premium received from the put plus a capital gain
on the stock. This occurs when the put strike is lower than the
stock's sale price. For example sell XYX short at $50 and sell a $45
(or lower) strike put. In this case if XYZ was below $45 at
expiration you would be exercised and would buy the stock for $45
then cover the short thus making $5.00 plus you keep the premium of
$2.00 so you make $7.00 minus commissions.
>
> The break even is the short sale price of the stock PLUS the
premium received from the sale of the put (excluding commissions).
So, if you shorted XYZ at $50 and sold the puts for $2.00 you would
be protected up to $52.00 minus commissions (the break even point).
Above the break even the losses are unlimited. The put would expire
worthless and you keep the premium but your exposure to the short
stock would remain and increase as the stock moves up.
>
> The margin requirements would be the same as for shorting a stock
except you could leave the premium received in your account to
partially defer this.
>
> Brokerages that specialize in option trading should be able to
accept orders that would open and close out all parts of a trade at
the same time. For example you would specify to enter the above
example to short 100 shares and sell 1 put at a limit price of $52.00
credit or better. Similarly you should be able to set a stop that if
the stock trades above $52.00 to close both positions, buy to cover
the short stock and buy to close the short put, however the usual
risks when using stops still apply (i.e. gap opening, fast markets,
etc.).
>
> Remember I said that this trade was exactly the same as selling a
call naked? This is how I would recommend doing this trade since the
commissions are far less and the stops losses easier to set up,
especially if you broker can not accept "one closes the other orders"
(change brokers!)
>
> If you have a specific stock in mind I will chart it for you.
>
> Good luck and good trading,
>
> Ray Raffurty
>
> ----- Original Message -----
> From: prosper1000
> To: realtraders@xxxxxxxxxxxxxxx
> Sent: Thursday, March 27, 2003 9:23 PM
> Subject: Re: [RT] What's wrong with the stratagie in #21907?/Ray
et al
>
>
> Here is is Ray,
>
> It should have been sell an at the money put and sell the
underlying.
> I want to know if I am clear about what can go wrong if the price
> goes up, stays about the same, or goes down. If the price goes
down
> the the loss on the option and the gain on the underlying should
> cancel out. If it goes up, you maintain the value of the sold
put,
> but you lose on the sell of the underlying. I guess that a stop,
> would stop the loss on the underlying, but then your put would be
> naked agian.
>
> Thanks again.
>
> Prosper
>
>
> --- In realtraders@xxxxxxxxxxxxxxx, "Ray Raffurty"
<r.raffurty@xxxx>
> wrote:
> > Hi Prosper,
> >
> > No I didn't get the second post. I've noticed that happens
> sometimes with Real Traders and/or Yahoo. What did it say?
> >
> > Good luck and good trading,
> >
> > Ray Raffurty
> >
> > ----- Original Message -----
> > From: prosper1000
> > To: realtraders@xxxxxxxxxxxxxxx
> > Sent: Thursday, March 27, 2003 1:24 PM
> > Subject: Re: [RT] What's wrong with the stratagie in
#21907?/Ray
> et al
> >
> >
> > Hi Ray,
> >
> > Did you read message #21907? I got the origionaly stratagy in
my
> > first post wrong. I redefined it in post #21907. Sorry about
> that. I
> > would still like to hear what you and others have to say
about
> it.
> > Thanks
> >
> > Prosper
> >
> > --- In realtraders@xxxxxxxxxxxxxxx, "Ray Raffurty"
> <r.raffurty@xxxx>
> > wrote:
> > > Hi Prosper,
> > >
> > > There is nothing wrong with any strategy as long as you
> understand
> > the possible risks and rewards:
> >
> >
> >
> > Yahoo! Groups Sponsor
> > ADVERTISEMENT
> >
> >
> >
> >
> > To unsubscribe from this group, send an email to:
> > realtraders-unsubscribe@xxxxxxxxxxxxxxx
> >
> >
> >
> > Your use of Yahoo! Groups is subject to the Yahoo! Terms of
> Service.
>
>
> Yahoo! Groups Sponsor
> ADVERTISEMENT
>
>
>
>
> To unsubscribe from this group, send an email to:
> realtraders-unsubscribe@xxxxxxxxxxxxxxx
>
>
>
> Your use of Yahoo! Groups is subject to the Yahoo! Terms of
Service.
------------------------ Yahoo! Groups Sponsor ---------------------~-->
Make Money Online Auctions! Make $500.00 or We Will Give You Thirty Dollars for Trying!
http://us.click.yahoo.com/yMx78A/fNtFAA/46VHAA/zMEolB/TM
---------------------------------------------------------------------~->
To unsubscribe from this group, send an email to:
realtraders-unsubscribe@xxxxxxxxxxxxxxx
Your use of Yahoo! Groups is subject to http://docs.yahoo.com/info/terms/
|