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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED -- Ignore unavailable to you. Want to Upgrade?

To: freeus who wrote (3268)	9/23/2000 9:48:36 PM
From: adairm	Read Replies (1) \| Respond to of 65232

Freeus: You can get hurt selling covered calls. Remember, you still own the stock. If it falls in value, you still suffer the loss in value! True, your sold call expires worthless, so you lose less than you would if you hadn't covered, but you still lose principal. Unfortunately, there are no easy systems that you can just blindly follow. You must monitor your positions. I like selling naked puts, too. My current strategy is to buy and hold the gorillas and kings, and sell puts on those that I don't own. For example, I own INTC, CSCO, MSFT, MDT, EMC, RMBS, HD, JDSU and some others that I've held for several years. I don't want to CC them because I don't want to pay the cap. gains tax. Besides, I still want to own them. But, I would like some cash income, too. My solution has been to use my "Buying Power" in my accounts to sell naked puts. I don't incur any margin costs, but I use the margin as the collateral to back up my short put. I've had great success recently selling puts on NTAP. (Gee... I wish I were long NTAP!!!) But since I'm not, I'll sell puts on it. Oh, yeah. I have this rule. I take your rule about only selling puts on stocks I would like to own one step further... I don't sell puts on stocks I already own! It lowers my risk. Since the value of my stocks is generating the buying power to sell puts, if the put is sold on a stock thats providing the margin, and the stock were to go down in a big way, well, it compounds the risk! Not only would I get assigned, my margin may not cover the assignment! Margin call, here we come! So, I don't do that. I (unfortunately) don't own NTAP. But I would like to. So, I sell puts on it. I'm getting paid not to own it. Remember those Dellhead days when everyone was bragging about "All Eggs in One Basket"? And bragging about "Three ways long"? Well, it's just not good risk management to invest that way. I believe in a concentrated portfolio. Right now, I have about 15 stocks, heavily weighted in tech. There are many great stocks I'd love to own, so I've got several choices for my put selling strategy. Right now, NTAP is such a cash cow! Tuesday, I sold the Oct 120's for 8 1/2. They're now down to about 2 1/2. (Thereabouts.) I might just have to close 'em out and go find another put to short! All the best, Adairm