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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe)
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To: Madpinto who wrote (745)2/27/1998 2:03:00 PM
From: Zach E.  Read Replies (2) of 2241
 
I agree that selling naked puts is largely equivalent to writing
covered calls, excluding margin effects. I guess that my only point is
that the "limited downside" of call and put purchases is only limited
by the percentage of one's portfolio that is put into these long
options. e.g., say X puts their entire portfolio into intel calls
and Y puts their entire portfolio into long intel stock and writes
calls against their stock. The next day, friendly aliens land on
earth and give out 1000000 Mhz chips for free, sending intel stock
to half its original value. Both X and Y have sustained massive
losses, but X's portfolio is now worth zero, while Y's is still worth
half its original value, plus whatever premium he got for the puts.

I don't mean to be condescending by the above example, I know that
your knowledge of options is far greater than mine, but the point is
that the risk of an options strategy can only be gauged by its
implementation in an overall portfolio strategy.
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