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Pastimes : Play It On Paper- Clappy's Newbie Option Thread -- Ignore unavailable to you. Want to Upgrade?

To: Clappy who wrote (4)	7/21/2000 4:27:12 PM
From: Dealer	Read Replies (1) \| Respond to of 176

Clappy! I hope you don't mind me posting this on this thread. I got this from the wonderful Disu's thread "Tidbits" Her friend Edamo did it for me.....I would love to have it here as a first post we can always go back and refer to. OK? dealer.....selling puts.... di asked me to respond.... first understand that when you sell a put you are incurring an economic obligation to potentially be forced to buy the underlying common at a pre agreed price at any time prior to contract expiration. two basic rules never to violate. 1)only sell a put in a issue that you have a desire to own, and at a price that you would be satisfied at owning. 2)have the cash or margin capacity to accept the stock should you be assigned. cash is always better then margin. puts are an excellent way to return monthly income in the 2-10% range against cash or t-bills. try to sell the put when the underlying is oversold...."oversold" is different then "selling off". many at the moment think qcom is at a low price, but short term it hasn't reached an oversold condition....the "oversold" point can be gotten by using such indicators as "slow stochastic" and "williams"....with the "slow stochastic" you look for the point when k crosses d, the closer to the 20 line the better. the williams indicator may show a turn prior to the slow stochastic. both can be plotted and saved on si charts. understand the risk....it is no more then buying the stock at a price lower then current market.....your discount to market is in the form of the premium obtained. if the stock stays above strike at expiration, you keep the premium. the premiums can be invested in fixed interest, or if aggressive can be used to purchase stock or calls...never, ever, stretch your margin, it can be fatal read cboe pamphlets on the mechanics of options, paper trade for a while, try to understand implied volatility that can lead to inflated premiums..... good luck...ed a