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Strategies & Market Trends : Ask DrBob -- Ignore unavailable to you. Want to Upgrade?

To: Jennifer O who wrote (2559)	8/30/2000 3:48:15 PM
From: Louis V. Lambrecht	Read Replies (1) \| Respond to of 100058

whativer - have problems with the contrarian 1/4th of my cell brain. It is my (Belgian blonde) understanding that: -Call options premiums increase when the share goes up. -Put options decrease when the share goes up. I would sell calls at the high of a market, and sell puts at the low of a market. Or do I miss your question? Selling the puts will tie you up with about 30% maintainance margin requirements (390/3=130), but in the case of SDLI you receive $75 of credit (= pure buying power). A maintainance margin decrease your available margin, but you haven't borrowed anything and do not pay interest on it. You indeed should have a good broker, some firms would ask you to cover 100% of the strike (390). Do not trade with that firm. Further, the premium received would mean that (if exercized) you would buy SDLI with a 20% discount on today's price. With the risk not to be exercized (infinite profit). Usually, an option trader would close it's position at 100% profit: in this case buy to cover if the premium falls to $37 1/2. Haven't calculated and depends on when the price of SDLI would rally. A rough WAG would be to see $450. If I would buy the share, I would either reduce my margin or reduce my buying power by a full $380 for $70 profit. As opposed to receive $75 and have to pay back half of it. Still having to assume the risk to be exercised at the price of 390 if the share was to tank.