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Strategies & Market Trends : Options
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To: Poet who wrote (1388)1/20/2000 3:01:00 PM
From: KFE  Read Replies (1) of 8096
 
Credit Put Spreads: Not really a complicated strategy. Just selling a put with a higher strike than the one you buy. Excellent conservative way to play the bullish side of a stock. You can usually have a break even point lower than the current underlying price. They are not going to get you rich quickly but can provide a good return without much or any additional capital outlay.

Covered call writing vs. naked puts: seems like too much discussion over something that is pretty straight forward.
Both strategies will give an equivalent dollar risk/reward. They have to or the option markets would not be efficient and they are. Naked puts usually require a smaller investment and equity in your account can be used instead of cash outlay. Naked put writing will generate a higher rate of return than covered call writing.

The only reasons that I can see why someone would do covered calls instead of naked puts would be:
1. They think that being short anything is un-American and only feel comfortable being long.
2. They can't get approval or are not allowed to do naked options.
3. They are ignorant about option strategies.
Institutions and others who are required to hold stock in their portfolios can be exceptions to the above.

Regards,

Ken


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