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Strategies & Market Trends : The Covered Calls for Dummies Thread
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From: ValueGuy4/16/2011 3:36:17 AM
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Thanks for all the answers. Very good ones and definitely ones to try out in the next few weeks or so.

I read in Michael Thomsett's "Options Trading for the Conservative Investor" that the best consistently income generating options strategy is the use of the "modified straddle"...ie using OTM strikes to create a short combination made up of covered calls and uncovered puts...sounds like a good strategy, but what basis do you all use to pick which calls/puts to write?

From the book, it mentions fundamental value, but I suppose one can use a combination of fundamental value, technical indicators like 50-day and 200-day moving average, volatility.
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Also, what I don't understand is the amount of collateral one has to put up in order to say, short a put.

So for example, if one were to short GE Weekly 19 put (expiring 21 April 2011) and assuming the price of GE is currently 20, does this mean that we have to put up 20% collateral for 100 GE shares at $20 each (therefore $400), and that's it? Regardless of the movement in the bid/ask price for the 19 puts? I guess from a very conservative risk management point of view, one would try and put aside the whole $2000 required if the 19 puts were exercised? In your opinion, what is a 'safe' level of margin to put aside?
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