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Politics : Formerly About Advanced Micro Devices -- Ignore unavailable to you. Want to Upgrade?

To: kash johal who wrote (105330)	4/13/2000 11:41:00 PM
From: deibutfeif	Read Replies (2) \| Respond to of 1573849

Kash, re:If the calls expire worthless - they reduce my cost basis with no immediate tax consequence as an example. I'm not clear on this. I assume you mean no tax consequence to the underlying position. Expired calls are short term capital gains (in the amount of the premium) with the attendant tax consequences. Actual basis in the underlying position does not change. Admittedly, the net profit realized can be considered a reduction in basis to make one feel warm and fuzzy. ~dbf

To: kash johal who wrote (105330)	4/13/2000 11:50:00 PM
From: Joe NYC	Respond to of 1573849

kash, If the calls expire worthless - they reduce my cost basis with no immediate tax consequence as an example. Good point. If AMD's stock price falls my covered calls value falls. This reduces my losses on the move. In my book that provides some downside protection. As the stock price falls, the value of your combined position falls. It falls at the same rate as the equivalent short put. A long put (which is the opposite of short put) provides downside protection, because as the stock price falls, the long put rises, and offsets some of the loses of the long stock position. Just as when the stock moves up they (covered calls) limit upside. Which again is equivalent to short put of equivalent strike. At the strike price of the short put, you realize the maximum profit, as the put expires worthless, and you keep all of the premium. Joe