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

To: rydad who wrote (1897)	8/10/2001 1:51:57 PM
From: Uncle Frank	Respond to of 5205

>> I'm going to have to go out and buy that book. That's a great idea. For about $100 you can buy all three of the books cited in the thread header. They make great references, and as sources of information, are far more credible than the opinions of random options traders that drop by to wow us with their acumen. duf

To: rydad who wrote (1897)	8/10/2001 2:35:17 PM
From: Mathemagician	Read Replies (3) \| Respond to of 5205

I, too, am confused by Roth's assessments. They are contradictory in significant places and IMHO incorrect in others. For example... Here is his summary of LEAPS CC writing: OUTLOOK: Mildly bullish ADVANTAGES: Downside cushion; cost reduction; good return DRAWBACKS: Limited upside DEGREE OF RISK: Comparable to stock ownership For put writing: OUTLOOK: Bullish to very bullish ADVANTAGES: Low capital needed DRAWBACKS: Needs close monitoring DEGREE OF RISK: Moderate For combinations: OUTLOOK: Very bullish ADVANTAGES: Combines covered Call writing with Put writing; collect two premiums DRAWBACKS: Complex; needs monitoring; Double Commitment DEGREE OF RISK: More intense than stock Roth goes on to say that "Unconvered equity Put writing is very similar to covered Call writing. They have the same risk/reward profile. But Put writing might be deemed a superior strategy. That is because the reward/payoff is greater." Here, he explains (complete with examples) that put writing and CC writing have the same risk/reward profile, except that the reward associated with puts is higher. Yet, his summaries imply the opposite in every category. Later, he discusses that straddles/combinations are effectively a combination of a CC and a written Put. These are each of moderate risk or less, yet when viewed together the risk somehow becomes "intense". For example, suppose we own 1 block of a stock in one account and have written a CC against it. Suppose now we write a put for the same underlying in another account. We now own two positions which "have the same risk/reward profile", yet the risk of one is "moderate", the other is "comparable to stock ownership", and the two together is "intense". I just don't get it. The only thing I can think of is that he is trying to protect an unsophisticated reader from overextending due to margin. FWIW, I view Roth's book as an good basic introduction to the mechanics of some options strategies. His analysis, however, is unreliable and should be taken with a grain of salt. dM