Roger's 1998 Short Picks Message Board

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Strategies & Market Trends : Roger's 1998 Short Picks

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To: Don Westermeyer who wrote (17078)	1/18/1999 11:34:00 AM
From: Oeconomicus	Read Replies (1) of 18691

Don, the only thing you and Hank are missing in your assessment of naked calls vs. shorting is what happens to the calls between writing them and expiry if the stock starts to run. Depending on what happens to the implied volatility of the options, they could initially run up faster than the stock. Of course, if you hold until expiry, the time premium goes to zero, but if it rises in the interim you may find it more costly to dump the position early than had you gone short and covered. My point is simply that one should also consider whether the options appear to be significantly overvalued given the volatility of the stock as well as whether the actual and/or implied volatility might rise above that implied in the price you received. In any case, by writing calls you are taking much of the risk of a short position, but without the same upside. Just like writing naked puts on stocks you like, if you are right about the stock (i.e. it moves the way you think it should without first moving against you), you make less with the options than the stock. Just my 2 cents, Bob

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