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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: Wyätt Gwyön who wrote (12788)	5/24/2000 11:26:00 AM
From: Herm	Respond to of 14162

Many people used it as a tax loop hole. No more! But, that fact remains that it does freeze the damage in down markets. All of the MMs and serious money do it to protect their assets. They sell something they don't own and that increases the liquidity, thus, the supply vs. demand is tilted towards more supply of shares and the stock head toward the downside. When the stock comes to a bottom they buy back the stock at a much lower price to repay their short position which they collected much more money when they first sold it. Thus, the difference between the two is what they earned and hopefully cushioned from the decline in capital depreciation of the long shares. The process reverses when the stock bottoms and the MMs know they should jerk up the price to short squeeze those with short positions. Like clockwork they rape those that hold on too long. In short, the technique freezes the clock for the stock position. Very effective!