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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: Dan Duchardt who wrote (13088)	7/23/2000 7:20:27 PM
From: Bridge Player	Respond to of 14162

Dan, your point is a good one. The 4 5/8 represents only the out-of-pocket cash outlay, and the max 7:1 return possible above 50 represents only the possible return on that outlay. The naked put does indeed require an allocation of available purchasing power (margin) to support the margin requirement. The source of that margin could be t-bills or a high-yield bond fund, which would be generating income while still serving as a source of usable margin, or simply purchasing power generated as a result of a diversified portfolio. It is no different than any naked put-writing program. And it is also quite true that the return on tied-up-required-margin is not that great when looking at the naked put alone, in comparison with other naked puts farther out of the money and with shorter time to expiration. In any event, to write a naked at-the-money 18-month leap put does require considerable faith in the future of the company and/or the cheapness of the stock! <g> BP.