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Strategies & Market Trends : Roger's 1998 Short Picks
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To: Roger A. Babb who wrote (18349)8/3/1999 11:35:00 AM
From: McNabb Brothers  Read Replies (1) of 18691
 
Roger,

Just about everyone you talk with on naked calls will tell you that they are very risky if not the riskiest thing one can do with options, but if one is willing to short a stock then selling a naked call is no different. In fact if one sells out of the money naked calls not only are you picking up time value, but they would also be selling the stock higher than what it is trading at the time the option was sold if one kept the option and the option buyer made you sell the stock. Most people will tell you that selling naked puts is less risky than selling naked calls, and I think the other way with that thinking also. In my opinion a stock can go down much faster than a stock can go up, so if one is caught with naked puts in a market crash it can really hurt. I have to admit this was more true until the internet stocks came along, for they had massive short covering that pushed them up very fast. Either way an individual has to be on top of the market in selling naked options and most of all use ones margin very prudent and not over leverage ones self.

I firmly believe options are meant to be sold, for 100% of all the time value of an option will expire worthless and studies have shown that 80% of all options expire worthless. Seems to me that the option sellers are the ones that have the advantage. Another thing I like about selling options is I've always liked having my account credited with money and never have liked my account being debted! Just as in business I seem to get ahead a lot faster when I have more money coming in the front door than leaving out the back door.

Hank
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