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Strategies & Market Trends : BEFRIEND THE TREND Short-term Options Trading Thread -- Ignore unavailable to you. Want to Upgrade?

To: Nancy who wrote (900)	2/16/2002 4:06:13 PM
From: Dan Duchardt	Respond to of 4058

Nancy, i have not thought about cc in the context of buy-write - i was thinking about people already own the shares to begin with and write calls with they dont want to sell the stock but want to capture some premium. If you already own the stock, then you would have the following choices: 1) Write a call at whatever strike and month appeals to you 2) Sell the stock, and write a put at the same strike and month as the calls you might have written 3) Sell the stock and do nothing While #1 is indeed mechanically different, it is logically equivalent to a buy-write. You choose to own the stock at its current price, taking on exactly the same future risk/reward profile as someone who does a buy-write. While the past history of your investment might influence your comfort level, it has no bearing on what is to come. The prior discussion illustrates that from a forward looking perspective, the CC has exactly the same risk/reward profile as selling a naked put, so there is no advantage to choice #2, and in fact a slight disadvantage in that it involves two transactions. For someone who does not own the stock, the naked put involves a single transaction and is therefore a slightly better choice than a buy-write. However you get there, the CC and the naked put have the same forward risk/reward profile. Dan