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Strategies & Market Trends : Zeev's Turnips - No Politics
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To: augieboo who wrote (94200)7/14/2002 2:37:05 AM
From: Jdaasoc   of 99280
 
combos split by at least 10 pts

Actually is is more of keeping option at about 10% from stock price when I write it so for stocks in 40-50 price range it's 10 pts.

I feel that dips are not too frightening anymore since there is some regemented market curbs that in place right now after DOW drops about 100 pts and market is not going up up and away on the up side with all the outflows from mutual funds.
Usually the CALL starts the combo when I sell it about 3-5 weeks before expiry when we have one of these quick 4-6% rallies 2-3 hr rallies. Then I add short PUT on one of the free fall dips we have shortly there after.
I usually hold the CALLs until zero or 80-90% of premium is burned up. PUTs I usually take profits whenever we get next quick 1-3 hrs long 3-5% rally or if appreciable time premium decay has occured since you never know when market is going to trade lower which it always sems to do. I always go into expiry with combos position even if it one side from next month with other side from this month.
The captial required is fairly small, less then 25-35% of value of underlying stock as long as you stay with current stock price between strike prices of PUT & CALL you are holding. The beauty is they don't charge for for the 20% maintneance for the second half of short option and they only charge you for greater premium of either the PUT or CALL premium. I been making the most pocketed premiums from the CALL side which makes sense the way the market is trading. I been sticking with high Beta Naz stocks with no debt and clean accounting as far as I can see so the danger of major price meltdown and corresponding short PUT out of control is rare. You would not see me write short PUTs on TYC, JPM or other clearly identified high risk stocks.
One side of the short position combo always goes to zero at end of month so it is not as risky as you would think and sometimes both sides of positon go to zero.
The key thing is I don't trade or hold any long stock. I am mostly in tax free bonds which are 90% available to risk with short options. If you hold stock, you only have 30% of stock's value available to use from purchasing short options. You might as welll stick to writing covered calls for extra income and avoid any risk of naked options.
It been working well since I decided that bubble market wasn't going to reinflate and held short positions until market sold off after any unsustainable rallies. I have done best post 9/11 when I got over not doing patriotic thing of going long market.
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