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Strategies & Market Trends : Value Investing -- Ignore unavailable to you. Want to Upgrade?

To: TimbaBear who wrote (12119)	2/23/2001 5:41:37 PM
From: Allen Furlan	Read Replies (2) \| Respond to of 78615

Timba,Mark and McSweet. I brought subject of risk/reward up with objective to get very analytical board to think out of the box. Selling naked calls is extremely risky, but rewards can be worth the risk. Personally I do ratio writes which requires a portion of the transaction to be naked and the risk to be less than a purely naked strategy. Timba re waxs. In your example, ie $6 at expiration, My short requires me to deliver 6000 shares for which I receive $30,000. However I will have to buy in 3000 shares for $18,000. Since original position was virtually zero my profit would be $12,000. In fact position is breakeven at 10. When I do these positions I intend to acquire more shares on the way up. Biggest risk is whipsaw. A spike in price is very large risk, that is why I would not choose position which has significant probability of buyout. Mark, idea behind these positions is partially money management, just like at the track. When you hold marginable stock in your account the buying power of your account is magnified. For example buy a $6 stock and sell 10 strike leap at 2 and your out of pocket is 4 but your margin buying power is 3. McSweet,as to implied volatility, the idea implies that option strategies are dependent on your ability to be smarter than the market maker. I ain't that smart. In my opinion the strategies have to be more focused on the uniqueness of the situation, thereby right up the alley for analytical thinkers. For example, I bought bche April 32 1/2 calls and sold April 37 1/2 calls for out of pocket of $100 for each 2/1 ratio position. This is merger situation with a collar price on the acquirer ,shpgy, of $37. In my opinion the upside and downside risks are small and hopefully I will net out 4.5 back for each position. I hope this post might induce other "vulture" investors to share their ideas.