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

To: FaultLine who wrote (1026)	6/11/2001 7:28:57 PM
From: Gary E	Respond to of 5205

I have just found this thread and find it interesting...... You said ..... However, I'd like to make an addition: With buy/writes, you buy common now. With short puts, you buy it later and for less. Given the choice, I still don't understand why anyone would buy/write when they can sell a put instead. It is tempting to agree with you but there is (at least) one significant difference, there is no mechanism when selling a put to obtain return from an upswing in the underlying stock to the strike price. The previously OTM contract is now exercised thus yielding the maximum possible return of premium + (strike - basis) - commission. This run-up to the strike, if it occurs, contributes significantly to the total return on the position. -dfl I agree to an extent.....but how about this...... Find a stock that you would like to own, that is at what you think is near a bottom, sell a put... the cash is deposited to your acct....if you were correct and that was the bottom..you will keep the $ from the put sale....if the stock drops and is put to you, at least you now own it at a slight discount, now IF this is the botom and the stock goes up, your doing just fine, now you can either buy a call to inhance the up move or wait for the up move to peak and now sell a call....problem that I allwas have is that IF I see the peak , why do I want to keep a stock just because I sold a call...and cant unload the junky stock because naked calls are not allowed for most of us.... All this is why opts are a pain for me.... Any ideas ?? Hal

To: FaultLine who wrote (1026)	6/11/2001 7:32:57 PM
From: Mathemagician	Respond to of 5205

It is tempting to agree with you but there is (at least) one significant difference, there is no mechanism when selling a put to obtain return from an upswing in the underlying stock to the strike price. The previously OTM contract is now exercised thus yielding the maximum possible return of premium + (strike - basis) - commission. This run-up to the strike, if it occurs, contributes significantly to the total return on the position. Symmetrically, there is no way for a CC to protect completely from a downswing in the underlying stock. Since the CC writer can only profit from the first few points of an upswing, the put need only protect against the first few points of a downswing. dM