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Technology Stocks : INTEL TRADER
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To: Gersh Avery who wrote (9169)3/5/2001 9:47:22 AM
From: Jurgen Trautmann  Read Replies (1) of 11051
 
Gerh, I see a important misunderstanding here.

When commercial firms sell calls it doesn't compensate their (previous or same-time-) buy of underlyings - that's a misunderstanding.

In contrary, you will get increasing "open-interests" of calls !!! So the futures look bullish when banks are going short, vice versa the futures look bearish when the contract-owners close their contracts (taking loss, also normally when the underlying has come down)

There's another, but IMO similar important misunderstanding from Steve. He pointed out that this strategy doesn't work if the underlying suffers more than the amount that is compensated by the written call.

That's correct, but does not take into consideration that you can close the call when it's worth is lost. After that you can sell the next call using the same cover. So even great downward-movements of the underlying are "possible". However: I did not check whether fast or slow falling underlyings are more/less profitable.

The more arguments the clearer the pic:

This "classical" strategy together with a growing part of T/A-believers stabilizes bear-markets in a astonishing efficiency.

When - what we see now - macroeconomical trends (partly generated by the bear-market!) press in the same direction, I have great difficulties to image a way how this could stop.

Did you read about historical crashes? It's not amusing to me.

Hope I'm wrong :)

Jury
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