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Strategies & Market Trends : Market Gems:Stocks w/Strong Earnings and High Tech. Rank
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To: kha vu who wrote (44872)6/16/1999 10:20:00 PM
From: manny t  Read Replies (1) of 120523
 
Kha Vu,

Your analysis is right,but what happens if AOL goes to 80?

A short Put requires extra Margin as the stock goes down,which means

you will get a Margin call if you don't have the money.Another possible problem is that you can be Assigned the Put at any time before Expiration,in which case,you are forced to buy Aol at 105.You will then own Aol at 105 less what you received from the Put, or 96.25.However the stock is now 80,so you have a major loss.If you sell a Call your upside is limited,but you don't have any added market risk

from the Call itself.
Manny T.
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