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

To: BDR who wrote (2745)	10/16/2001 8:57:05 AM
From: Dan Duchardt	Read Replies (2) \| Respond to of 5205

Dale, Uncovered option writing is thus suitable only for the knowledgeable investor who understands the risks, has the financial capacity and willingness to incur potentially substantial losses The key point here is that cash secured short puts are not uncovered. Here is the definition from Regulation T: Covered option transaction means any transaction involving options or warrants in which the customer’s risk is limited and all elements of the transaction are subject to contemporaneous exercise if: (1) The amount at risk is held in the account in cash, cash equivalents, or via an escrow receipt; and (2) The transaction is eligible for the cash account by the rules of the registered national securities exchange authorized to trade the option or warrant or by the rules of the creditor’s examining authority in the case of an unregistered option, provided that all such rules have been approved or amended by the SEC. There is no question that many and probably most brokers will not allow you to write puts in an IRA, and they are free to make that rule for their clients, but that is not true of all brokers. By this definition, vertical spreads may also be covered positions. Of course, my interpretation of this means nothing in the real world. What does matter is if you can find a broker who agrees with it and will permit the activity in the account. It appears there is at least one who will. I posted a link earlier. Dan