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Technology Stocks : Dell Technologies Inc.

DELL 130.65

+0.5%

12:35 PM EST

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To: freeus who wrote (76401)	11/4/1998 8:20:00 PM
From: Buffalo Bob	Read Replies (1) of 176387

Hi Freeus, I know you didn't ask me this question but I'll try to explain what I know about writing puts. When you write a put you are agreeing to buy the stock at the strike price if the stock is below the strike at expiration. In exchange for taking this risk you get to keep the proceeds (premium) from writing the put if the stock is above the strike price at expiration. You must have authority from your broker and collateral to write naked puts. The collateral can be buying power from stock that you already own. Basically the common collateral is 25%(varies with broker)of the stock price plus you must leave the put premium in your account. For example: XYZ @ 65 XYZ Nov 65 Put @ 3 ¼ Write 5 Nov 65 Puts @ 3 ¼ = $1,625 less commissions Your collateral would be 500 X 65 = 32,500 X 25% = 8,125 If XYZ is above 65 at expiration the put expires worthless and you keep the $1,625 This is a 20% return for less than one month! (Good return, but you don't participate in the stocks gains) If XYZ is below 65 at expiration you buy the stock @ $65 a share minus the 3 ¼ you got for the put for a net cost of 61 ¾.. (Not bad if you wanted to buy the stock anyway and wanted to buy it lower than the current market price) Many people use this strategy for this very reason. Warning: You are obligated to buy the stock no matter how low the price goes unless you buy back the put before expiration. If Dell were trading @ 50 you would still have to buy it @ 65 or buy back the put which would be selling for $15. (15 X 500 = 7,500 – 1,625 = 5,875 Loss) Ouch! This is a very basic explanation, there are other things you need to know. Before using this strategy you should read several books about options. And never write puts on a stock you wouldn't be comfortable owning. Hope this helps. Bob

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