Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Strategies & Market Trends : Options 201: Beyond Obi-Wan-Kenobe -- Ignore unavailable to you. Want to Upgrade?

To: Dan Duchardt who wrote (61)	8/18/2001 10:44:32 AM
From: PoetTrader	Read Replies (2) \| Respond to of 1064

Dear Dan and Thread It's early Sat am and I don't know if the caffiene has just not worked its way into the brain stem yet or not...but with this market being so ugly I was working out a CC repair strategy for stocks I want to let go of. But the strategy I came up with seems too good to be true. For instance. I bought Sanmina a while back at 32 it's now at 19.00...I've sold a couple of calls and reduced my price to 29.5...but now I just want to get rid of it. I look at Sept calls and I could sell a call at a strike of 10.00 for 9.00. I would make the premium which would reduce my price to 19. -- If the stock gets called away (and it should -- cuz if it goes below that I'm throwing in the towel!) that's what I want, but I've at least mitigated my loss. I could go in and do the same repair strategy on aol. Purchase at 45. at the strike of 25 there's a 14.90 premium...I've already bought the stock...no longer want it...and would reduce cost basis to close to 35...so I end up ahead 4.00 from the current price of 39.00. Am I not getting something? This seems too painless. Especially for this market. I could see this as crazy if you loved your stock and wanted to hold it...but I want to rid myself of some of the dead in the water stocks and reposition my portfolio. Please advise this very weary dumbling...and thanks much in advance. PoetTrader

To: Dan Duchardt who wrote (61)	8/18/2001 12:55:57 PM
From: Thomas Tam	Read Replies (1) \| Respond to of 1064

Dan, Selling the puts OTM or the calls ITM when the stock is higher captures a relatively small premium, but increases the likelihood of keeping it. Do you mean sell calls OTM to increase odds of keeping stock here? The advantages of put writing is increased leverage if you don't keep the cash in reserve (and increased risk), and that if the trade is "successful" the puts expire worthless so no additional transactions are needed. Are these what you mean by "marginally better", or did you have something in addition or different in mind? You can often capture more premium with the buy-write CC because the interest rate on the cash is factored in to the option prices, but that may not be enough to offset transaction costs. I was referring to the transaction cost aspect of the two different strategies, two (buy/write) vs one (short put). Also for the period until the option expires, there is less cash outlay and interest payments to your cash base may or may not be relevant. Nice to think things through with someone like you who is on tops of things. Later P.S. I was only able to scalp .20 on the August 60 put, thanks for asking PoetTrader