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Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: OX who wrote (1338)	4/7/2000 3:32:00 PM
From: David Lind	Read Replies (2) \| Respond to of 2317

This message is intended as a public service to anyone new to options who is considering NPs as a primary strategy. As a contributor to this thread, and as one who has received much assistance from other contributors, I feel the responsibility to briefly share my experiences this week. What I have to say has been said before by others on this thread, but sometimes ignored by me, and I suspect by others. Jan-Mar I profited very nicely from writing OTM puts. But earlier this week during the 20% NAZ correction I saw the face of death. The death of my portfolio, that is. Fortunately, I had the foresight (luck!) to put on some protective long puts the day before the major correction, and I have recovered safely with only minor bruises. However, watching the value of many short options increase ten-fold in a matter of minutes was an experience I would not wish on anyone. I will now be writing a lot more credit spreads with protection in place, and for those who are relatively novice to this game I would strongly suggest the same. The income from credits is a bit less, but the margin requirements will remain much more stable throughout the trade, and the risk is quantified. That is not to say that NPs can't be an excellent strategy for specific situations. In fact, until this week I have closed 100% of my written options with strong profits. But unless you are an extremely experienced options trader, and you can write six-figure checks to cover margin calls without flinching, I would suggest that you keep NPs to a minimum of your portfolio. What happened this week will happen again. Next time, it could well happen just before expiration, and there may not be a rapid recovery. You don't want to be caught in it without protection. -David