Jon:
I have been selling naked puts regularly on dynamic companies like AOL, CMGI, DELL, and of course QCOM. When the company becomes stagnant (e.g. DELL), I closed the position and use the margin power to sell naked puts of other stocks.
Selling puts is like that turtle, steady but keeps moving. There is nothing wrong in buying calls which can give a fantastic return, however in a correction, you lose your money in buying calls, just like QCOM right now.
a. Buy Jan340 call : $ 47/sh (AAFAH) - cash outflow $ 47/sh
b. Sell Jan340 put : $ 47/sh (AAFMH) - inflow inflow $ 47/sh (tiny bonus: earns dividend in money market)
QCOM has to reach $ 387 to break even in buying call, but only to stay above $ 293 to b/e in selling naked puts.
If QCOM is below $ 293, you do a "repair" strategy on your naked puts. There is no repair mechanism that I know of in buying call should QCOM closes below $ 387.
All in all, naked puts give you more flexibility to face a market downturn/correction. Of course buying call can give an unlimited upside potential in a rising environment.
Even with the ups and downs of QCOM, I can smile either way: when QCOM goes up, the naked puts decay fast, time to close. When QCOM goes south: time to sell more puts!!!
Paul
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