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Strategies & Market Trends : Option Spreads, Credit my Debit
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To: robert b furman who wrote (2239)2/7/2003 3:23:25 PM
From: KFE  Read Replies (2) of 2317
 
Robert,

There have been many replies to your question about the QQQ puts. There are numerous possibilities as to why someone is doing this but based on experience I do not spend a lot time trying to figure it out because if there is an arbitrage available it is not usually available or practical for the retail investor. The energy is better spent in other areas. I will make a comment about something else in your original post that I do feel strongly about that no one has addressed.

my only experience is selling puts as a way of accumulating a stock I desire to own

You should NEVER sell naked puts under the theory that you would not mind owning the underlying anyway. This holds true even if you want to own the underlying at a specific price below the current price. If you want to own the underlying-buy it, if you would would like to own it at a certain price- use a limit order but do not use naked puts as a vehicle because if you are right and the underlying takes off you will not own it. I hear some say (even some options books which should be avoided) that I would not mind owning a stock at 50 that is trading at 60 so I will short the 50 puts and own it with a reduced cost. Suppose the stock does drop below 50 then rises but does so prior to the expiration date. You have the profit from the sale but now you are not participating in the subsequent rise which you correctly predicted.

Companies and institutions use naked puts for reasons such as buying back stock but the retail investor should only be doing naked puts because he/she thinks they can generate an acceptable ROI and not because they would like to own the stock.

Regards,

Ken
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