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Strategies & Market Trends : Strictly Buy and Sell Set Ups
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To: chowder who wrote (3089)4/2/2005 11:56:18 PM
From: profile_14  Read Replies (1) of 13449
 
You might SELL a short term duration deep in the money call (enough to cover you through the dividend) that has more intrinsic value than the dividend. Conversely, you can buy a deep in the money put (little premium). You do not pay or collect dividends with options. However, wash sales in either case may be affected.

A seller of an option, whether call or put, can get exercised because he is not in control. The buyer of the put or call has control over exercise because that person is long the option. So if you bought the put, you theoretically could not get put the stock short unless you called your broker and gave him those instructions. If you sold the call, the buyer of the call you sold could have you assigned the stock if so chosen by the buyer.

I suggest deep in the money because time premium is less, although you have to commit more capital to do so. So when the stock goes down by $12.50, your short term time premium on a at the money put does not go from say $1 to $0.10 when the stock makes the big move. Despite making the big move, you gave up 90 cents in time premium with the at the money option, whereas you have the same time premium with a deep in the money put (delta is just about 1.00).

Hope I helped more than I confused.

Best regards,
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