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To: Sr K who wrote (152790)	2/1/2000 9:34:00 AM
From: Lee	Respond to of 176387

Sr K,..Re:.the key to options investing is not the position you want to take, but selling overvalued and buying undervalued options, which means selling only when the premiums have expanded (puts in a stock decline, calls during a rally), and buying only when the premiums have contracted. Well "put", so to speak. <gg> Different strategy for those wishing to take a position in the underlying and those speculating via the leverage options provide. Only caveat is that selling options requires the resources to be available if the option goes against your position. Otherwise, buying calls, when premium is stripped, in an up trending long standing bull market seems to be a convenient way to bolster one's portfolio without the use of margin. <gg> Cheers, Lee

To: Sr K who wrote (152790)	2/1/2000 10:04:00 AM
From: Geoff Nunn	Read Replies (1) \| Respond to of 176387

Sr K, Re: I think he meant the put premiums (and call premiums) expand and contract like ebb and flow and the key to options investing is not the position you want to take, but selling overvalued and buying undervalued options, which means selling only when the premiums have expanded (puts in a stock decline, calls during a rally), and buying only when the premiums have contracted. Hmmm..not sure what this means. Are you suggesting -- or implying -- that in a stock market decline put premiums are more likely to rise than call premiums, or that in a market rally the opposite is more likely to occur? It sounds to me like that is what you are implying, but perhaps not. I would submit that premiums on puts and calls both increase during periods of rising volatility, and both decline when volatility subsides. And further, that this direct relationship between option premiums and volatility holds regardless of whether the market is rising or falling. Also, on the strategy of shorting a stock and simultaneously selling a put against it, why do you say this doesn't require margin? Since when did brokers begin not enforcing margin requirements on short sales of stock?

To: Sr K who wrote (152790)	2/1/2000 10:45:00 AM
From: GVTucker	Respond to of 176387

Sr K, RE: Selling naked puts has a substantial margin requirement; selling short and then selling a put (for the same number of shares or fewer), is a covered put and has no margin requirement. Actually, a short naked put has a lower margin requirement in most cases than a covered short sale. The short naked put has a requirement of 20% of the underlying equity plus any amount that the put is in the money. The covered short sale has an initial requirement of 50% margin with a maintenance requirement in normal circumstances of 30% of the stock price.

To: Sr K who wrote (152790)	2/1/2000 11:54:00 AM
From: Chuzzlewit	Read Replies (2) \| Respond to of 176387

Sr K, I think you are missing the major point behind my post: if you consider simultaneously buying a stock and selling a call, vs. selling a naked put, the positions are equivalent. McMillan (Options As A Strategic Investment) devotes a significant number of pages in his book establishing this proposition mathematically. In point of fact, the price of puts and calls are interrelated because puts and calls can be converted into one another (this technique is demonstrated in McMillan's book). While many investors use the approach you discussed (buying and selling "mispriced" options), still others use options as a vehicle to buy stocks at a lower price (again, this strategy is discussed by McMillan). The problem with the approach you outlined is that you assume that an expanding or contracting implied volatility implies a mispriced option. I would argue that it implies or greater or lesser uncertainty about the underlying issue. That implies that mispricing of options occurs only in relationship to one another (e.g., significant differences between the IV of at the money puts and calls). Finally, selling puts does not use margin in the sense of creating margin debt; it does, however, decrease the amount of margin available to you. Suppose that you have no cash in your account and wish to establish a position in XYZ. Buying the stock and selling the call creates margin debt to the extent of the price of XYZ minus the premium received. Selling the naked put creates no margin debt (in fact it reduces margin debt to the extent of the premium received), but it does reduce margin available to you (the calculations vary depending on the brokerage account). TTFN, CTC