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Technology Stocks : Ascend Communications (ASND)
ASND 203.85-3.4%2:06 PM EST
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To: Riskmgmt who wrote (29514)1/6/1998 3:24:00 PM
From: Glenn D. Rudolph  Read Replies (1) of 61433
 
Hi Glenn; Still arguing the point for naked puts over covered calls eh? I have written
naked puts since we talked about 6 months ago and I like to do both. One thing with the
puts, is that, the brokerage requires a margin of approx. 30% of the market value of the
stock-at least my broker does and this ties up cash, or, if a margin account, costs the
margin interest. On the other hand, writing calls on stock you own, is cash IN and
reduces the margin interest. I have not figured it all out to see what this comes out to in
dollar terms in a specific stock/call/put example but I'd guess the further out you go in
time the bigger the interest factor becomes.

Ray,

The brokerage house should require about 30% of the underlying stock value. It may in the form of stock shares and so there would be no interest. The SEC requires the brokerage house to require 20% of the underlying stock less the premium received. Many houses exceed this requirement but none are permitted to go below that.

You brought up a point I was tring to make. You must have your money tied up in the stock to write the covered call. Not so with writing a naked put since you may have positions in two or more securities with the same amount of equity. The potential gain is greater but so is the potential risk.

Glenn
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