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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: OX who wrote (13122)	8/6/2000 4:20:44 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 14162

OX, the margin std (for naked equity options) is 20% plus prem. That is correct, and actually it is what I stated. But the sentence following my initial statement could easily have been misinterpreted, and besides that I should have said $7,000, not $6,000 (20% x 1000 x $35)^, so thank you for calling attention to it. The $7,000 is the amount of your money you would need in place before selling the MAR50 calls. That plus the entire premium received would be needed to maintain the margin requirement. If the stock should go the wrong way (up) for this attempted leg in, the margin requirement would go up at 20% of the amount the stock moves, so the extra cushion you suggest would be mandatory. If the stock pulls back as we want it to for legging in short first, then the margin requirement goes down and all is well. IMO, it would either be extreme luck or awfully good predicitive skills to leg into the short Mar 50 calls at 15... if you can do it, by all means, more power to you. No argument on this observation. That $35 stock would have to go up $15 or more to get that price on the MAR50s. If it did move that far quickly, selling the MAR30 for a quick profit might be more attractive than completing the spread. This is one reason I think it's better to go for spreads with adjacent strikes and work to build more of them. The other reason is the higher probability of the price closing at or above both expirations where the full gain potential will be realized. Dan ^ The one margin account I do have has a fairly complicated statement of margin requirement that in this case would be premium plus 20% of stock price less the amount the option is out of the money, so in this case it would be premium + $4000 (20% x 1000 x (35 - 15), but let's just call it premium +20% of price for this example.