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

To: rydad who wrote (3158)	12/19/2001 11:05:10 AM
From: Dr. Id	Read Replies (1) \| Respond to of 5205

What if a person sold a large number of put contracts on something like NTAP NULOU March 2002 (7.5), Bid price is .1 and ask is .25. Now if one was to sell like 50 contracts you would receive 5000 x .1 = $500. Realistically, what is the odds of NTAP dropping to $7.5 by March? I realize anything is possible, but how likely? If NTAP did drop to 7.5 or lower on expiration and I got assigned, I would be on the hook for $7.5 x 5000 = $37500. Assuming I set aside the money to cover the assignment, would you buy into this strategy? I figure if NTAP dropped to $7.5 I would be happy to buy it at this price. When it dropped down that low this year, it didn't stay down that low for long. Also considering the possibility of a recovery around the corner (who knows when?) it would seem like a calculated gamble in my favor. If I did get assigned 5000 shares of NTAP at expiration, I could always write calls very close ITM the following month and dump the stock, or hold for an eventual gain. What do you think? Where is the fallacy in my logic? Merry Christmas all Rydad, Why would you want to tie up $37500 to make $500? I could see selling NTAP puts at a higher strike price (I've done that...sold 10 Jan 15's for $2.50 each...now they are worth around 25 cents), but at the strike that you're talking about it doesn't make sense. There are better ways to use that buying power to make your $500 in the near term without tieing your money up for 3 or 4 months. In fact, you could sell 20 Jan 15 put contracts at .25, get your $500, and only tie up 30k for one month. A bit higher risk of getting the stock put to you, but not much. Dr.Id@IdliketohaveNTAPputtomeat15.pov