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Strategies & Market Trends : Short-termSelling Puts (Covered Calls by another name)
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To: quidditch who wrote (8)2/4/2006 2:12:57 PM
From: IRWIN JAMES FRANKEL   of 66
 
Good questions.

High IV and the perception that you can capture big returns drives you to high risk positions. Those are the very stocks that the bottom falls out of as liquidity drys up. They are not the stocks that one can easily hold through a multi-year cycle. At least not in quantity.

It seems to me that you always have to make a valuation decision on the stock and the market. It is that decision that determines whether you sell puts or calls. In one multi-year period I determined that the market was over valued. I dumped most of my holdings put the money in T-bills and used the margin to write naked calls. I averaged over 100% annual returns for several years. But then I got uncomfortable with writing calls. It was a good thing. :-)

One of the lessons we should have learned from years of biotech investing is that when the Fed drains the liquidity biotech will get killed. It is not the time to be selling puts.

ij
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