DAYTRADING/SWINGTRADING STOCKS with INTRADAY INVESTMENTS Message Board

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Strategies & Market Trends : DAYTRADING/SWINGTRADING STOCKS with INTRADAY INVESTMENTS

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To: Ramsey Su who wrote (331)	6/25/2001 10:02:14 PM
From: deronw	Read Replies (2) of 565

Ramsey, We typically prefer to sell calls over buying puts because by doing so, you put the value of time on your side. The problem with buying puts is that the premium quickly erodes as time decays, even if the stock price doesn't move over the course of several weeks. However, if you are short the calls, the same time value will erode, but now you are on the profitable side of the transaction. Since a vast majority of puts and calls expire worthless, it makes sense to put the odds in your favor by being on the short side of that transaction. Therefore, you will notice that we rarely buy puts and instead sell premium by writing naked. If we ever do buy puts or calls, it will be because we expect a large price movement in the stock within a short period of time. As such, the erosion in time value will be less of a factor. As far as why I sold the 110s instead of the 115s, there was simply a larger premium to be made. Since we typically do not hold options until expiration, the risk of assignment is not as great. Let me know if you have any further questions on this. Deron

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