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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: adairm who wrote (900)	6/4/2001 10:21:29 PM
From: hivemind	Read Replies (1) \| Respond to of 5205

Does anyone know how ETrade would handle this? I know they prohibit naked call writing. I would think writing puts equivalent to your selected buy-write would produce the same level of income and risk. But where one needs to close out the position, buying back a short put avoids the "hanging" naked call from selling out the long stock. The delta problem remains, of course, as the common falls, so does grow the delta of a short put towards 1.0. Personally, I have been doing short puts within my capacity to make stock purchases under the then prevailing market price. I have been doing this only on issues I feel comfortable with long-term, which for me could be forever. If I get put, so be it. If not, also fine. I also choose issues in different industries so as to diversify in-the-money risk, and I will take such positions when I deem them having a good risk/reward ratio. As a recent example of a more risky tech play, for me, I went and shorted SUNW jan 02 15 puts when the stock came down hard to near 16. Right after such moves I have found IV to be high enough to warrant a portion of my CC/naked-puts portfolio. In this case I received 17.67% of the 15 strike as premium for an 8-month put, which is about 23% annualized. I make maximum income if SUNW stays above 15, and downside break-even is $12.35, a decline of 24% from where I put on the position. I am not that worried about buying SUNW at $12.35. Meantime, the premiums and the cash collateral earn market rates. This is just something I have done and am doing. Not to be considered advise of any kind, just my opinion.

To: adairm who wrote (900)	6/5/2001 12:16:12 AM
From: dday	Read Replies (2) \| Respond to of 5205

Adairm, " Does anyone know how ETrade would handle this? I know they prohibit naked call writing." Was not aware of that since I work at a licensed BD. I also function as an options principal for the firm (125 reps approx.) and see a lot of strategies etc. in my reviews of accounts. We, and I think this is pretty much standard among most brokerage houses, use 'underwriting guidelines' in determining an account's ability to trade naked calls. Considerations are total net worth, income, liquid net worth, age, dependents etc. Sort of like qualifying for a mortgage. Last I checked, on-line option charges were pretty steep due to per/contract charges. You might be better off going to a full service joint with one of those 1% pay no commish deals and utilize it for option writing. Just an idea to check out. As far as entering the order itself, you should be able to combine the sale of the stock and the call option buyback as one order. You can certainly do this on a buy/write, spread etc. Just tell the trader you want to do the trade for a net credit. For example suppose one wants to sell 1000 Cisco at 19 and buy 10 July 22 1/2 calls at 1/2 to close the position. This produces a net credit of 18 1/2 before commish. You place the orders together and just tell the trader the net credit you want-----in this example 18 1/2-----Then, the trader could actually fill you at 19 1/8 and 5/8 or 18 7/8 and 3/8c ----so long as the net credit is 18 1/2 or better. Ditto on this type of order in initiating positions. The credit becomes a debit in that case. Still like the sixers to sweep. Good luck Bob