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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: adairm who wrote (900)	6/5/2001 12:16:12 AM
From: dday	Read Replies (2) of 5205

Adairm, " Does anyone know how ETrade would handle this? I know they prohibit naked call writing." Was not aware of that since I work at a licensed BD. I also function as an options principal for the firm (125 reps approx.) and see a lot of strategies etc. in my reviews of accounts. We, and I think this is pretty much standard among most brokerage houses, use 'underwriting guidelines' in determining an account's ability to trade naked calls. Considerations are total net worth, income, liquid net worth, age, dependents etc. Sort of like qualifying for a mortgage. Last I checked, on-line option charges were pretty steep due to per/contract charges. You might be better off going to a full service joint with one of those 1% pay no commish deals and utilize it for option writing. Just an idea to check out. As far as entering the order itself, you should be able to combine the sale of the stock and the call option buyback as one order. You can certainly do this on a buy/write, spread etc. Just tell the trader you want to do the trade for a net credit. For example suppose one wants to sell 1000 Cisco at 19 and buy 10 July 22 1/2 calls at 1/2 to close the position. This produces a net credit of 18 1/2 before commish. You place the orders together and just tell the trader the net credit you want-----in this example 18 1/2-----Then, the trader could actually fill you at 19 1/8 and 5/8 or 18 7/8 and 3/8c ----so long as the net credit is 18 1/2 or better. Ditto on this type of order in initiating positions. The credit becomes a debit in that case. Still like the sixers to sweep. Good luck Bob

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