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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club

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To: Trebor who wrote (1859)	10/27/1998 8:49:00 PM
From: MrGreenJeans	Read Replies (1) of 15132

Options: Perceptions and Deceptions Now how am I going to lose my home on a deal like that? The title of this post is taken from an options book written by Cottle. Not everything is what it appears to be when it comes to options. I will tell you how you can lose your home when it comes to covered calls. You have a position in a stock let us assume a very large position. You write covered calls against it. The company in question goes bankrupt. Your stock is worth zero and you find your covered calls were really not a hedge in this particular case because you never thought the company was going to go bankrupt, or you thought the stock would meander or rise. So you find the "hedge" you placed was inadequate. Inadequate hedging is one of the most common mistakes made when trading options. Say it does not happen. It happens to floor traders more often than reported. You never here from them again. They go on to other professions. Someone else takes their place and makes the same or different mistakes and someone else takes their place and... That is how.

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