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Strategies & Market Trends : Options
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To: edamo who wrote (3482)2/24/2000 4:09:00 AM
From: Uncertain Walker  Read Replies (4) of 8096
 
edamo:

Re: "70625 prem against an assignable 980k stock....return of 7% against capacity......and in reality an infinite return, as it is not a tangible use of cash!!!! just capacity.....sort of like lending someone your line of credit for a fee, without ever accessing it!!!!"

Selling puts is like selling insurance. When time is good, you pocket the premium. However, when there is a catastrophe in the market or an individual stock, the risk can be overwhelming, especially when heavily leveraged. It's difficult to control this risk.

When the likes of LU, DELL, and VISX announced unexpected bad news, their stock can tumble an easy 30%. One may not have time to repair the put-writing strategy. How do you prepare for this scenario which does have a finite probability of occurrence in any company's history? I don't think TA can predict this kind of event.
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