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Strategies & Market Trends : Ask DrBob
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To: Jennifer O who wrote (2559)8/30/2000 3:48:15 PM
From: Louis V. Lambrecht  Read Replies (1) of 100058
 
whativer - have problems with the contrarian 1/4th of my cell brain.

It is my (Belgian blonde) understanding that:
-Call options premiums increase when the share goes up.
-Put options decrease when the share goes up.

I would sell calls at the high of a market, and sell puts at the low of a market.

Or do I miss your question?

Selling the puts will tie you up with about 30% maintainance margin requirements (390/3=130), but in the case of SDLI you receive $75 of credit (= pure buying power).
A maintainance margin decrease your available margin, but you haven't borrowed anything and do not pay interest on it.
You indeed should have a good broker, some firms would ask you to cover 100% of the strike (390). Do not trade with that firm.

Further, the premium received would mean that (if exercized) you would buy SDLI with a 20% discount on today's price. With the risk not to be exercized (infinite profit).

Usually, an option trader would close it's position at 100% profit: in this case buy to cover if the premium falls to $37 1/2. Haven't calculated and depends on when the price of SDLI would rally. A rough WAG would be to see $450.

If I would buy the share, I would either reduce my margin or reduce my buying power by a full $380 for $70 profit.
As opposed to receive $75 and have to pay back half of it.
Still having to assume the risk to be exercised at the price of 390 if the share was to tank.
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