Selling Puts: Have Cash Will Travel Message Board

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Strategies & Market Trends : Selling Puts: Have Cash Will Travel

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To: David Lind who wrote (1143)	4/8/2000 2:12:00 PM
From: Tom K.	Read Replies (2) of 1235

...unless you are an extremely experienced options trader, and you can write six-figure checks to cover margin calls without flinching, I would suggest that you keep NPs to a minimum of your portfolio. ..... David, am I missing something..... Thursday, I sold Siebel May 70 PUTs for 2.1875. I have $3500 in the account (50%) to cover each contract should it be put to me. Whether put to me or not, my return on the $3500 is (2.1875*100)/3500 which equals 6.25% for about 6 weeks (about a 50% annualized return). Should I have the unfortunate situation of the stock plummeting to 60 in 6 weeks (currently at 126), I won't get a margin call because I have the cash set aside. As you know from our prior discussions, the cash is in T-Bills gaining even more return which I haven't factored into the above. Since exceeding a 30% annualized return is acceptable to me and it can be done without possibility of a margin call, I'm not worried. And should it be put to me, I'll sell CALLs until I recover. Why would I want to keep this approach to a minimum in my portfolio? Am I missing something in my analysis? Tom

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