Calls and Puts for Income Message Board

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Strategies & Market Trends : Calls and Puts for Income

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To: pcyhuang who wrote (989)	7/22/2007 10:45:13 AM
From: dealmakr	Read Replies (2) of 5891

Hi pcyhuang, From yahoo DEC AHMXD 10/10.40 B/A DEC AHMXV 4.40/4.80 B/A I am a full time trader and have been trading options since the 1980's. Usually am a seller of options about 95% of the time on the equity side (will fade the trade) and maybe more of a buyer than seller on the index side. Here is how a possible scenario works out. AHMXD sold @ bid 10 AHMXV bot @ ask 4.80 Credit recieved 5.20 Max gain 5.20 with stock over 20 @ expiration Max loss will depend on how this scenario all works out. Stock price 12.80 Stock gaps down to 5 due to an event. Buyer of short option shorts stock and exercises option. Seller of short option now has stock put to him at 20/per share without knowing because of early exercise and doesn't exercise his offsetting long option the same day. Depending on cash position, possible margin call comes, oops. Next day stock is halted for problem, now long at 20, possibly facing margin call and unable to exercise offsetting hedge, think it doesn't happen at times? In reality I call it very little premium received for the risks involved, did you read the last 10K, its an eyeopener for the whole subprime arena. I specialize in bank stocks and I really didn't like what I saw there. Look where the money comes from and who their creditors are. Remember that book value can be rapidly adjusted as the assets on what book value is evaluated against are repriced. You have to think outside of the box and view all of the possibilities no matter how remote. Especially with stocks that are under pressure with perceived problems, rumor or fact.

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