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

To: Stock Farmer who wrote (1195)	6/24/2001 11:44:58 AM
From: hivemind	Read Replies (1) \| Respond to of 5205

An alternative name for the thread might be: "Relatively Conservative Stock Purchase and Income Strategies Using Options As Portfolio Volatility Moderation Tools" or: "Selling Options to Speculators for Fun and Profit, Both Upwards and Downwards Leaning" <VBG> Another tidbit of my latest thinking along these lines (profit motive): The price of both calls and puts change in line with volatility, but according to options pricing theory volatility is non-directional. This implies that where any sharp move is expected in a stock, either up or down, the calls and puts should both rise in price. I'm gonna go out on limb here and suggest that when a significant down move is expected, fearful longs will tend to want to sell calls and/or buy puts as a protective action. Speculators might also add to this trend by taking the same actions. This would tend to drive the prices of calls downward, and puts upward. In the reverse situation, where a significant up move is expected, fearful shorts would want to buy calls for protection and sell puts they may hold already. But in this direction, there'd probably be more speculators selling puts and/or buying calls for the same reasons. These actions would tend to drive calls upward and puts downward in price. So, I'm thinking that after a sharp down move, puts get inflated and might make a better comparative position to take than a buy-write. I'd expect the calls would have become deflated and thus become less "juicy". After a sharp up move, one could play the same game with a buy-write, gaining the inflated call price vs deflated puts price. I don't do this from a flat position, because in this market sharp up moves tend to fizzle out, and you could be left "holding the bag" on the buy-part of the buy-write. If I'm long already, I'm cool with it. With sharp down moves, however, I'd rather be selling the puts against cash/margin.