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Strategies & Market Trends : P&S and STO Death Blow's -- Ignore unavailable to you. Want to Upgrade?

To: mishedlo who wrote (22768)	1/8/2003 8:44:54 AM
From: Mike M	Read Replies (2) \| Respond to of 30712

Sorry, Mish, I still disagree. With the naked "put" you took the risk when you sold the "put". With the covered "call" you took the risk when you bought the stock. The selling of the covered "call" was simply a hedge. The selling of the covered "call" limits upside as well as downside, albeit, as you point out, doesn't limit downside that much (particularly in your example). Moreover, if you had purchased INTC at 15 and sold a covered "call" with three months time remaining when the stock was at 17.5 for 3.25 then you have effectively limited your upside to 18.25 (for the duration of the option) and downside to 11.75. The put option offers you a 3.25 gain with a 14.25 downside. Your example, of course, also assumes that every stock could be an Enron which is certainly a low probability scenario. With the "put" you have no alternative if the stock goes against you but to buy back the "put" or cover the loss during the option period. If you own the stock outright you can continue to own the stock for recovery well past the option period. That is a huge difference.