Ascend Communications (ASND) Message Board

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Technology Stocks : Ascend Communications (ASND)

ASND 211.39

-2.7%

2:40 PM EST

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To: Greg h2o who wrote (37376)	3/3/1998 9:16:00 PM
From: Glenn D. Rudolph	Read Replies (1) of 61433

Greg, I wanted to touch further upon the naked put versus the covered call. I was at work when replying to the last post and did not give it much time. Pick any security and any strike price with the same expiration. Put on paper a naked put at this strike and expiration and then put on paper a covered call with the same strike and expiration. Have the stock drop 80% and see if the remaining asset values are not identical. Have the security go up 100% and the equity is identical. The risk and rewards are the same. The difference is one has their capital tied up in the underlying security with a covered call. Not so with a naked put. The brokerage house does not pay interest on the shares of this security when in street name. They have the use of those shares for short sales, etc. There are other benefits to firms having shares held for their clients in street name. The firm wants you to write a covered call but not a naked put for this reason alone. The risk and rewards to the investor is identical. Glenn

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