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Strategies & Market Trends : The Covered Calls for Dummies Thread

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To: PoetTrader who wrote (2190)	8/22/2001 10:00:16 PM
From: Thomas Tam	Read Replies (1) of 5205

This is how I looked at the trade. Short 8 SCMR 7.50 puts for $2.50 for $2000 premium collection. Commitment of $6000 in case you are put the stock. Net cost of stock is $4000. Could buy 800 shares at $5 for cost of $4000. The value of your portfolio in either case is $4000, no gain has been made if the stock stays at $5.00. You've simply substitute one unit of value (cash) for another unit of value the short put (with premium attached). There has been no net gain in the portfolio. I think selling the $5 put gives less premium, but if SCMR stays at $5 you pocket the premium versus the case you illustrate where you stay even. Am I a little clearer? Later

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