Yeah George,
We had several distant relatives in the Army stationed in Ft. Hood. Apaches helicopter pilots and another a tank team. Man, real estate is cheap in that town. Yeah, hpeace is Steve the engineer.
That 20% plus income is take out. Compounded it would generate more. Shorting against the box write ups always dwell on the old tax advantages. In the real world, shorting against the box is still done all the time by fund managers. In attempt to hedge a position(s) and lock in profits, fund managers will short the same stock they own. The net result is the same thing as buying PUTs. As the price decreases the PUTs become more valuable as the long position decreases. So, the net result is to lock in the gains. Example, you have 1,000 shares long and short 1,000 shares of the same stock. Regardless of the direction of the stock price, a move up or down is countered equally. Thus, you effectively protect your gains.
Now, the use of shorting increases the liquidity in the stock. Why? Because you are selling something you don't own and that inflates the float. When there is more supply than demand, the price will drop. That is one reason most tech stocks drop like rocks when the panic button is pressed. Shorting weights down that stock and it dumps real fast. When the stock bottoms, the fund managers cover their shorts. Thus, the MMs will jerk up the price and cause a short squeeze.
Knowing the dynamics will help you write better CCs by allowing you to better time your trades when you see the trading signs. |
