Semtech Message Board - Msg: 3251875

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Technology Stocks : Semtech

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To: Sword who wrote (728)	1/24/1998 8:16:00 PM
From: AreWeThereYet	Read Replies (1) of 886

Jerry, Thanks for your info... >> I sold 5 Feb 22 1/2 contracts to cover 500 shares when the stock was selling for about 22. I received $828 for these. Two days later I bought them back, thereby negating or cancelling the contracts, for $575. << So you are writing covered calls at 22 1/2 and collect the premium. When SMTC fall, the call's value decline and you can buy them back at a cheaper price. If the price move up above 22 1/2 then the person can exercise the option and you lose your 500 shares SMTC at $22.50 but you still keep the premium. Any misunderstanding? Now back to my question: If I don't already own any SMTC and I feel comfortable to buy them at $20 for long term investment. Instead of placing the buy order, I write nake-put at $20. If the price never fall below $20 then I keep the premium but I end up with zero share of SMTC. If the price did fall below $20 and the option is exercised buy the owner then I have to pay $20/shr regarding the market price of SMTC. The risk is when the put is in-water and I don't have enough money to buy all the shr at $20 then I am in big trouble. The good point is the worst case scenerio is knew beforehand vs you never know how much money you lose in the case of writing nake-call because you never know how much the stock will rise. Am I getting the right idea? My investment account only permits buy/sell options. So is "selling options" which I don't own equal to "write the options"? Thanks aC

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