Dan, Wow, so many questions, so few good answers. <g> Let me hit them one by one.
If you are going to write uncovered calls, index options are much safer than individual stock options. I usually don't write uncovered calls as they have more risk than profit potential, and I prefer to have my risk/profit ratio in better position than that. I don't know what you mean by the phrase "I increase my portfolio." That sounds like it may really be quasi-covered.
I don't believe that option writers outperform buyers. I believe that writers win less more often while buyers win more less often. That is why the majority of my writing strategies involve an insurance long position out of the money. I like the fat premium from those majority of wins, but I don't want to be short an uncovered call the one time a VerticalNet goes from $25 to $270. Please note, option buyers rarely go bankrupt while uncovered sellers nearly always go bankrupt. In the early days of listed options, uncovered selling was the rage. Mathematicians did complex formulae that showed how far out on the bell curve was any possibility of financial ruin. Those guys are now far out on the beltway feeder roads washing windows for dollars at stoplights. <g>
O.K., I understand the narrow spread question now. Since the long option is usually disaster insurance, I would use a wide spread. In the Vignette questions, I would be selling 35s or 40s and buying 20s or 22 1/2s. In other words, I want the fat premium for being right without the total risk if I'm wrong.
My few uncovered put writes had to do with the fact that I was getting nearly as much premium as the downside of the stock if I am wrong. For example, in one case, I received over $20 on a $37 stock. So, I had more profit potential that risk. I was only putting $17 of my money on the line for a shot at $20. In a stock I liked very much. |
