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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: S. maltophilia who wrote (82133)	7/4/2000 6:47:45 PM
From: Knighty Tin	Respond to of 132070

K.A., Two comments: 1. I am glad that your calendar is now Y2K compliant. <g> 3. The key is the early unwind due to price appreciation. I have always beaten other pro portfolio managers at the buy/write game, as well as the credit spreads and spread conversion games, because I use far out options. There are 3 possibilities. a. The stock stays in a narrow range, in which case, they win by being able to write several times for more total premium. b. The stock crashes and burns, in which case I win, due to much less cash at risk. I the example you gave, you are risking $27 or so and I am risking $17 on a highly speculative stock. In a big down move, neither of us will be thrilled, but your pain will be both sooner and deeper than mine. c. In a big up move, I win, because I capture more premium sooner. So, the nearer term call writers only win when a speculative stock remains in a narrow range, which I consider a bad bet in most market environments. I win all the other times, which is most of the time. This has been one of the keys to my consistent outperformance of other option managers for several decades. (Picking securities better is another. Using a wider variety of securities is yet another.) What is funny is, when they get me drunk and try to find out how I am beating them, I tell them exactly how, and they don't believe it. Theory says they should win. And theory is why LTCG went belly up before the Fed bailout. <g> So, do as you will, but I am adamant that even if the short term/high risk trade does work out this time, it will not work out often enough to beat the bigger premium/lower risk position over time.

To: S. maltophilia who wrote (82133)	7/4/2000 6:51:09 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

K.A., Two comments: 1. I am glad that your calendar is now Y2K compliant. <g> 3. The key is the early unwind due to price appreciation. I have always beaten other pro portfolio managers at the buy/write game, as well as the credit spread and spread conversion games, at least partially because I use the furthest out options for most of my trades. There are 3 possibilities. a. The stock stays in a narrow range, in which case, they win by being able to write several times for more total premium. b. The stock crashes and burns, in which case I win, due to much less cash at risk. In the Vert example you gave, you are risking $27 or so and I am risking $17 on a highly speculative stock. In a big down move, neither of us will be thrilled, but your pain will be both sooner and deeper than mine. c. In a big up move, I win, because I capture more total premium sooner on a much smaller investment. So, the nearer term call writers only win when a speculative stock remains in a narrow range, which I consider a bad bet in most market environments. I win all the other times, which is most of the time. This has been one of the keys to my consistent outperformance of other option managers for several decades. (Picking securities better is another. Using a wider variety of securities is yet another.) What is funny is, when they get me drunk and try to find out how I am beating them, I tell them exactly how, and they don't believe it. Theory says they should win. And theory is why LTCG went belly up before the Fed bailout. <g> So, do as you will, but I am adamant that even if the short term/high risk trade does work out this time, it will not work out often enough to beat the bigger premium/lower risk position over time.