lemme see. Selling a call, means you think the stock will go down, as why sell something that is betting it will go up?
You would buy, it right?
1. buy a call. stock will go up. You can call it in at a certain price (the strike price) and exercise the call or sell the call itself at the now higher price. Used to cover shorts sometimes.
2. buy a put Betting the stock may go down, you buy an option to "put" the stock with someone at a higher price. It is used often as a device to cover an investment stock you buy against price decline.
3.buy a straddle Both a put and call are bought in one option. This means that no matter which way the stock goes, the put will offset the call and vice versa. You are betting on volatility. If the stock stagnates you get hosed both ways. To cover, you sell puts and calls.
Selling a naked call You want people to exercise on you? I don't think so. You don't want that stock going up. Ever. If you sell a call, you should have bought the stock and covered a reversal by buying a put.
Selling a naked put If the stock goes down, the guy can "put" the stock with you at the strike price. He makes the difference. If you have shorted it, it makes sense. He "puts" the stock with you, (You buy it) and you close the short or bet still shorter to cover. Cover with buying a call too at that point, and you should be covered with an earlier call that is now way out of the money.
EC<:-} |
