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

To: BDR who wrote (3667)	4/13/2002 7:06:08 PM
From: Dan Duchardt	Read Replies (1) \| Respond to of 5205

Dale, I think Dan and I are talking about the same approach (puts being a better way to take advantage of a decline in price than covered calls) but a put spread has even less capital at risk than a long put does. That is true to some degree, but as you have noted a vertical (same month) spread (either debit or credit) evolves very slowly. I was focusing on the advantage of long puts for short term price movement where the put delta tends to run high if the stock falls. The effective delta of a spread is the difference in deltas of the two options, which tends to be very small unless it is a very wide spread. Verticle spreads are more suited to being right in the long run, i.e., close to or at expiration time, although a debit put spread can still be better then a short call if a stock runs away on you. Also, if you are brave and don't mind being assigned more stock you can always sell the long side of a put spread for a nice profit leaving a naked short put to hopefully ride the stock back up. Even if you sell the long put too soon (at a profit), at least you have lowered your cost basis for the assigned stock more than you would have with just the short put. You might want to take a look at calendar spreads, taking the long side farther out than the short side so that time decay works for you. But we are getting pretty far away from the central theme of this thread. I already pushed the envelope with the long put discussion, but I hoped that wasn't too far removed from CCs since I was talking about it in the context of core positions. Dan