America On-Line: will it survive ...? Message Board

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Technology Stocks : America On-Line: will it survive ...?

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To: The Duke who wrote (8070)	2/21/1998 7:44:00 PM
From: Investor-ex!	Read Replies (1) of 13594

The Duke, Thanks much for your comments. I'm not all that into the technical terminology, but I believe you are essentially correct. Short stock + written puts is "very similar" to naked calls. i.e., one receives a credit for the options written and the loss to the upside is unlimited. However, the risk-reward graphs are not necessarily the same. For example if the puts written are 5 points below the short price, an additional $5 of profit is made from the short in addition to the put premiums, should the stock close at or below the put price. This is not the same as selling calls 5 points out of the money. More importantly, most investors are not allowed to go naked options-wise at all unless they have pretty deep pockets, a lot of options experience, and/or a lengthy relationship with their broker. I think some brokers don't allow naked options at all. My point to Pancho was that money could be made on at least part of the short position while waiting for this stupid stock to retreat. Selling covered puts is actually a more "conservative" approach to dealing with this stock than an outright short position.

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