Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: Knighty Tin who wrote (89080)	1/31/2001 11:41:16 PM
From: Knighty Tin	Read Replies (1) \| Respond to of 132070

To All, Contradiction clearer upper. I have received more than a few PMs and emails asking why I say that secured puts are better than covered call writing, but have buy/write positions on ASA and EMF. Because I'm a big fat hypocrite! <g> Nope, here is the real reason. Both ASA and EMF are closed end funds. They pay out capital gains just about every year and there is no way to determine in advance what those payouts will be. The stock price will decline by the amount of the payout, but, if it doesn't hit some magic number, which I think is $2.50 per share, though I am not exactly certain, the option price is not adjusted. So, let's say that the payout is a dollar. Your share price declines by a dollar, but you are still short a put at the same price you were short before the payout. That sucks, unless you are paid for this risk, which you are not. At least not right now in the premiums. If you are long the stock, the stock price declines by the dollar, but you also get the buck in your greedy little hands. And your short call is a dollar less likely to be called away and could fall in value. Falling in value is nice if you are short the call. So, I hope that explains why the CEFs and many high dividend payers, assuming there will some day be high dividend payers again <g>, are the exception to the general rule to sell puts rather than do two separate transactions.