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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: adairm who wrote (1089)6/19/2001 8:33:04 PM
From: Dr. Id   of 5205
 
True enough, but wouldn't the person who had the margin to sell 10 puts on a $110 stock sell 100 contracts on a $14 stock?

Not necessarily. In my case, I would want 1000 shares of the stock were it put to me. Particularly if I'm using the put strategy to possibly generate income OR purchase stock that I would want at a lower price than the current asking price.

Here's the risk with selling puts and getting assigned: Most people use their margin to secure the puts if excercised. Right? Let's say the stock is at
20, and they sell a 17.5 for a little premium. Maybe get a point. The stock goes down to 15, and the contract gets excercised. Now, assuming that
you didn't go and spend your premium, you own stock worth 15 that you've paid 16.5 for. On margin. If it continues to fall, you just might start
getting margin calls from your broker. And you might just be forced to sell some of your precious "cheap" shares for less that you think they're
worth.

Next thing you know, your account has spiraled down to heartbreak levels, that margin draining your capital.

Adairm@howdoyouthinkIknowthis.exp

This would be true of any stock purchase on margin. So, it's more of a caution about margin than about selling puts. If you don't have the margin to covered a stock being put to you (with some room to spare), one shouldn't be selling puts to begin with.

Dr.Id@wherearetheotherputsellerstoday?com
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