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Non-Tech : The Critical Investing Workshop -- Ignore unavailable to you. Want to Upgrade?

To: Clappy who wrote (19959)	5/24/2000 11:16:00 AM
From: LLCF	Read Replies (2) \| Respond to of 35685

At least someone is addressing the problem: <Could you explain why writing covered calls to remove a margin is dangerous. Your method is to sell the stocks to get out of margin problems. I agree this may be a good idea. However, if he wrote enough calls now to prevent the margin calls for a fall of another 10% to 15% additional stock price drop, it could buy him more time. Then as the cycle begins an up swing he could attempt to reduce his margin when he feels the price and time is better for his situation.> I told him to sit down and analyze his position very carefully, and that a simple 'sell calls to cover margin' reco was 'bone head', especially seeing the guy was saying he was totally tapped out... to futz around buying another 10% on the downside is bonehead IMO in his dire straights. I also stated that he had some losers to sell along with his winner because of his worry about a tax bill wiping out his money. Selling stocks rather than options is not 'my method', it reduces more risk than selling calls... period. When you sell calls you could easily see a stock gap down and the calls barely move, so IF he were to get hit again with a margin call he may actually have to BUY BACK the calls and THEN sell his stock EVEN LOWER. You have to be very careful with options, in 1987 calls actually went up as the market went down as people covered calls and puked stocks. <In addition, selling off now would mean that he is convinced that his stocks are going to go lower.> This is not true... it means he's borrowed to own stock, and he decides no to do this anymore, thats all... it means incase they DO go lower he wont have to buy back his calls [more comish, great] and THEN sell at even lower prices. IT IS PRUDENT. Anything can happen in the markets, if Q comes out with some bad royalty news and opens @ $40 only one strategy worked. DAK