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Strategies & Market Trends : The Covered Calls for Dummies Thread
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To: Mathemagician who wrote (2681)10/14/2001 8:35:30 PM
From: Uncle Frank  Read Replies (3) of 5205
 
>>The risk inherent in shorting puts is no larger than the risk of writing covered calls. If you disagree, please indulge me with a scenario using a particular stock that illustrates the greater risk in a naked put vs. CC position.

I've been picking at that knot all afternoon, and think I've unwound it. Covered call writing as I practice it adds no additional risk to my investment strategy, since I am writing against positions I have already decided to hold over the long term. But in the case of put writing, acquiring the underlying is not the result of choice; it only occurs if the play turns bad. This implies a much lower degree of confidence in the stock, which leads to my belief that put writers assume a much higher level of risk. Note that I have the same reaction to the buy-write approach. In both cases, I feel the risks assumed are excessive in this extremely volatile market.

jmho,
uf
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