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To: George Coyne who wrote (16430)9/28/2000 12:06:36 PM
From: Georgeb  Respond to of 21876
 
Georgec,

When you short a stock you borrow stock that you do not own (from your brokerage) and sell it with the obligation to buy it back at some point in time, to cover your short sale. You sell a stock short anticipating that the stock will go down and you will buy it at a lower price than you sold.

This works to offset most of the losses due to writing a put that is increasing in value. This is different than a "covered put" however in that your portfolio is not completely covered due to the difference in the time-factor part of the premiums. That part of the premium in the Black-Scholls options equation increases the further out we go with the expire date.

No doubt everyone on the board knows all this.

Georgeb



To: George Coyne who wrote (16430)9/28/2000 2:25:57 PM
From: MDGO  Read Replies (1) | Respond to of 21876
 
There is such a thing as a covered put. An example is:
A trader writes a 100 July put. At this time the trader
buys a 110 Aug. put. The trader is now covered. If the
the stock falls to 90 and the trader is put at 100 the trader then sells the long put and makes a 10 point profit.
A covered put writer does not have to deposit margin.


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