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Gold/Mining/Energy : Precious and Base Metal Investing

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To: dara who wrote (20246)	9/12/2003 6:12:44 PM
From: yard_man	Read Replies (2) of 39344

dara just ask Jay. But here's my take on what he is doing: The covered call part of the strategy is simple -- buy the stock sell the call -- you hope to reap the call premium. If shares are called you do just that -- but you can't make any more than the call premium if the stock moves higher. If the price goes down and stays below the exercise price at expiry, you still have the shares at a reduced cost == share price - minus the call premium you took in. Being short puts is different (but not by much) -- it is also a bullish, but "naked" play with limited upside potential. If the stock is above the put price at expiry -- you keep the whole premium -- but you can't make any more than the entire premium you sold the puts for -- should the price rise higher than the put exercise price. If on the other hand, the price is below the put exercise price at or near expiry and the shares get "put to you" at the exercise price -- you have picked up the shares for == excercise price - put premiums you received. May sound risky -- but it is actually less risky than a GTC limit order to buy the stock once it reaches some given lower price -- why?? because you take in the put premium. from a risk standpoint -- he would be doing the same thing if he simply sold twice the number of puts -- left off the other part of buying the shares and selling the calls -- the only difference would be the potential to receive dividends if long the stock. Just selling twice the number of puts would have the advantage of requiring less margin -- but when selling puts -- one should always keep the cash available in the account to buy the shares in case one is "put."

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