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Technology Stocks : NorthPoint Communications Holdings, Inc. (NPNT)
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To: Panita who wrote (328)11/19/1999 10:03:00 AM
From: ahhaha  Read Replies (2) of 786
 
All you've done is increase the degree of the move so as to imply a covered write is lucrative. It changes nothing from what I said. If the stock went to 120. you wouldn't make a dime. If the stock drops from 90, you have to ride it, hold the cover while it threatens to rise.

What is also implied is that you know where stock prices are going, because whereas the $30k can be withdrawn depending on whether your broker allows you to do it, withdrawal leverages the account and makes it vulnerable to SMA margin call. In that case you have to scramble to dissolve whatever other gamble into which you've factored the $30k, in order to meet the call or use other presumably available funds. From long years of experience I have learned that it is prudent if not critical to leave the collateral alone.

You never write deep-in-the-money calls. It's inefficient. You would write the $100s when the stock was at 90. When you write deep-ins you are often called at the worst time. The write is used properly as a method of forward selling, not hedging. From years of experience which started before options were exchange struck (we had to do it OTC) I learned to sell the stock rather than go through the stress of the "neutral" risk covered write strategy. Getting clever with options just pins you down and makes you the MM's woman. You don't see that stress, but believe me, it's there.
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