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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: FaultLine who started this subject	5/10/2001 12:21:21 AM
From: dday	Read Replies (1) of 5205

Read most of the thread tonight and a few observations: (different subjects) 1)Put writing and covered call writing have identical risk/reward profiles. Okay, close enough if not identical. The most professional way to sell puts is to place the cash into treasuries (90% marginable) and use the put selling (equities only) to increase income. The margin released from the treasuries allows you to sell puts while still earning interest on your cash. Not that other methods don't work---they do---This isolates your put selling strategy and keeps you out of trouble with the rest of your portfolio. (margin calls etc.) 2)When a stock sits precisely on a strike price, the call will always be slightly higher than the put.This has to do with the time value of money. 3) If put and call premiums are out of balance, the pros (wirehouses) will perform what is known as a 'reverse conversion' and lock in an arbitraged spread. They can do this and we mortal retail customers cannot because they have no transaction costs. It was, at least in my earlier days, a meaningful profit center. ......Since 2 & 3 are a bit OT for CC writing, I will break out my option files and explain in greater detail if there is interest.... 3) Just to let you know....most brokerage houses have different margin requirements for covered leap writing versus covered call writing. That is, of course, if you use leverage. This was implemented a few months back at my correspondent firm due to the very rich leap premiums. Normal disclaimer as I am series 7 licensed and also a Registered Options Principal ----am not recommending any strategy etc.etc.etc. Am enjoying these mathematical discussions as they reinforce why I majored in history .....<gg> Regards Bob

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