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Technology Stocks : America On-Line: will it survive ...?
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To: Michael Strope who wrote (3047)5/11/1997 9:26:00 PM
From: Art Stone   of 13594
 
I just opened up an options account and it seems they only allow me to sell covered calls. :-( Is this SOP or should I call them up and make a stink? If this is the standard, why? Aren't you trading with your money?

Reason #1 - Unlimited Risk

Whereas the purchaser of a stock option is limited to losing the entire value of the option (Your money), the writer of an option has an *unliimited* exposure if the stock goes against the option. The only way which a naked option writer can close out a position prior to expiration is to purchase the same option back in the open market. If you write the covered option, if the option stays at its price, you at least have the ability to deliver the stock if the purchaser exercises the option.

Since the price of options is highly volatile, and especially during a period of rapid price change, it is possible to lose many times the sales price of the option before being able to unwind the position - if you don't have siginifcant liquid assets, the firm could end up holding the bag for a ton of money.

Reason #2 - Competition

The long-term profitability in the options market is from selling options, not from buying them. Since many brokers are also market makers in the options, it isn't in their best interest to facilitate sellers - unless the seller is clueless about how to price options and just gives all their money away.
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