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Strategies & Market Trends : The Options Box -- Ignore unavailable to you. Want to Upgrade?

To: Poet who wrote (7584)	11/21/2000 6:32:47 PM
From: X Y Zebra	Respond to of 10876

You mean you'd sell puts, not calls, right? Most people don't have the ability to sell naked calls, as it's the most risky options strategy there is. Or are you talking about buying the stock and selling covered calls on some favorites? Under the present environment... (and observing closely the bollinger bands indicator) If I like the stock, (read the company), AND I consider the stock one that is not about to fall off some cliff for whatever reason, (i.e. current overvaluation, or questionable prospects given the particular of the industry). Ideally, I try to observe that the price of the stock is riding the lower bollinger band. Then... I would sell the naked put (or covered with cash). If at expiration, the stock has fallen under my strike, I am put the stock itself. The premium received becomes 100 % profit, as I would not have to "close the position". I treat the purchase of the stock as a separate transaction from the option (put) itself, rather than considering the premium a reduction in basis --from the tax consideration, I believe, this is a MUST. Then.... At that point, (once I own the stock), I would consider selling the call, (assuming some sort of rally has taken place that would carry the underlying to a higher level, (again, ideally, at some point of resistance, i.e. upper bollinger band, or some fibonacci level serving as "strong resistance" The reasons are because: 1) as the price reaches such levels, the probabilities against a continuous rise, diminish, and 2) the premiums to receive will be higher, (than if I had sold the call, with the stock at lower levels). This also assumes that the strike price will be higher than your basis in the underlying. This requires a little bit of patience, since you have to "time this movements". Preferably, you would do this with stocks that you have become well familiar with their trading patterns. Something that helps to be patience is to have a medium to long term view of the stocks you are following --not to mention the little use of margin. (i.e. preferably, do not use it). Lack of margin allows you to look (and marvel), at the stock market with glee, in spite of massive paper losses, (in the underlying, if you own it), while you are accumulating cash, thanks to the generosity of the option buyers -gg-. I agree that selling naked calls is the riskiest form of speculation in the option markets. Selling puts, CAN be nearly as risky, as you may be forced to buy a stock at a substantially higher price, particularly if the stock has fallen out of bed. (Read Lucrecia Lucent McEvil). Most definitively it is NOT a risk free strategy. While I have had success using the above, in early November I had to take a little medicine (read, a damned loss -g-), as the politicians decided to tank the market as we all know. --Damned bastards! Market Fairies eh ? I thought I was the only one using my imagination attempting to see some positive in this market... It surely looks as though the market is full of trolls such as: Old Pimple Gore and.... Rotten Butt Bush