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Strategies & Market Trends : The Market Taught Me That......
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To: benmoti who wrote (87)11/9/1997 9:04:00 AM
From: Paul van Wijk  Read Replies (1) of 151
 
Behrouz,

I agree with you that selling put-options on stocks you want
to buy cheap can be a profitable strategy. What I would like
to advice is to do this only with companys who have a solid
track-record. When you use this strategy on stocks like MSFT, INTC
etc. you always will be rewarded. The chance these kind of stocks
tank 50% is very, very small. And they always will recover.

When you use this strategy last 2 months on WDC you would
be hammered. WDC was trading above $50 a few months ago. Suppose
you wrote some naked puts $45 or $40. At this moment you would
sit on a big loss, and own the WDC-shares. It could take some
time before they will be out of the woods.

Same thing can happen to stocks like APM. Their P/E looks very,
very attractive. But what will happen with the P/E if they
come with profit-warnings.

So I like the strategy, but beware of the danger.

Paul
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