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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: Joe Waynick who wrote (2152)8/27/2001 1:59:40 AM
From: Dan Duchardt  Read Replies (1) of 2241
 
Joe,

Thank for the clarification. Selling cash secured puts is a viable strategy. My only suggestion is for anyone who wants to implement it, the old "buy low- sell high" principle is still relevant. In this case, buying low means selling the puts when you think the stock is more likely to go up than down. Even if it is a stock you want to own at a lower price, there is substantial risk in selling puts at a strike you think is a good place to own the stock long before the stock gets there. By waiting until the stock appears to be at bottom, you collect a much larger premium for the put.

Selling cash secured puts is an equivalent strategy to a buy-write covered call, buying stock and simultaneously selling calls at the same strike as the put you might have sold. You may actually get more time premium for the calls, but that is offset by the interest you can get on the cash backing the puts, assuming the broker pays a fair interest on that money.

Dan
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