PAL,
Thanks for your well laid out "CMGI triple-play". There is one thing I would like for you to add to the discussion, if possible, Especially for new options investors.
On the naked put side, many brokers, including one of mine, have almost ridiculous margin requirements. For example, OLDE requires 25% of the value of the underlying stock, plus the premium, when writing a naked put. So if you write a Jan '01 110 put when CMGI is at 110, and receive $43 premium, you would actually have to deposit $27.50/share into your margin account. And strangely enough, as the stock rises, and your position actually improves, you have to DEPOSIT more money, assuming that 25% of the stock price increases faster than the then-current premium value decreases.
So with OLDE, you would have the following scenario:
Buy 100 CMGI @ 110 = -$11,000
Sell 1 Jan '01 110 call @ 52 = + $5,200
Sell 1 Jan '01 110 put @ 43 = 0 *see note below
Addit. 25% of stock price margin requirement= - $2,750
*(At OLDE, the put premium of $4,300 goes into account, but cannot be used as it is held for security on put position. It does accrue interest though).
So bottom line - you would have to send OLDE $8,550 to do this trade. If the stock went over 110 by Jan '01 110, you would pocket $15,300 ($11,000 for sale of stock plus the $4,300 that is released from the margin requirement). If I am figuring this right, this is not quite even a 1-bagger (about 79% return).
Please check my calculations, and make sure I am not totally off-base (I'm not a seasoned veteran). If they are correct, it seems you may be better off just being long the stock (if your broker is OLDE that is).
On the other hand, I believe Schwab's requirements are similar, with the exception that they only require 10% of the premium to be deposited on the put side.
If you have tons of cash in your account, I guess this isn't a problem. But if not, could you please share what you have found as far as margin requirements from your broker? Maybe we all need to change to your broker!
Thanks for all of your help,
Mike
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