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Politics : Formerly About Advanced Micro Devices
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To: Petz who wrote (83495)12/17/1999 11:11:00 PM
From: niceguy767  Read Replies (2) of 1576121
 
Hi John:

Why would any vehement naysayer expose themselves to unlimited (i.e. limited only by $0 value of stock)downside risk by writing puts if they really believed a stock was vulnerable to a significant downside? Sorry John, you may want to rethink that one. Contrarily by writing calls, a bearish strategy, one is exposed only if a bullish trend is achieved and is limited to gain in the event of a bearish trend! If I were bearish, I really don't think I'd want limited gains on the downside and unlimited exposure on the upside. I don'y think you would either if you really think it through...If I were truly bearish, I'd want unlimited gain potential on the downside with limited risk on the upside and the only way I know how to do that is to buy puts or write calls. Contrarily, if I were truly bullish, I'd want unlimited potential on the upside and limited risk on the downside which means I'd write puts or buy calls.

Writing naked calls is a bearish strategy (i.e limits upside, unlimited (for all intents and purposes) downside. Writing naked puts is a bullish strategy as it limits downside risk and offers unlimited upside gain. Covered calls and covered puts are just less risky versions of these strategies!

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