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Strategies & Market Trends : Option Spreads, Credit my Debit -- Ignore unavailable to you. Want to Upgrade?

To: robert b furman who wrote (2239)	2/4/2003 1:35:13 AM
From: Dan Duchardt	Read Replies (2) \| Respond to of 2317

The prices on those transactions were buys at 20.40 and sells mostly at 30.20 with some at 30.30. Worst case there was a credit of $980 per contract pair that MIGHT have to be repaid in two years, plus $20 "interest" if both strikes expire in the money. That works out to just slightly over 1% per year. At worst $1000 per contract pair must be held in the account for the duration, but just maybe it can be held in some interest bearing instrument that will at least cover the $20 over the life of the contracts and perhaps net a positive return. If so and the contracts reach expiration day there is no risk of loss, and the possibility that QQQ will get past 45 by expiration, which would make for a healthy payday in the form of some retained amount of the credit. Early assignment could be a nasty surprise, but is very unlikely until near expiration. The somewhat equivalent bull spread with calls bought at 45 and sold at 55 could have been obtained for a debit of $60 per contract pair at quoted prices, which takes money out of the account and has 3 times the risk of the put spread, even if the put credit has to sit at no interest. Getting that put spread with the $980 credit was a real bargain. Ken might be able to give us some insight into who might be able to arrange a transaction that size and what one might be permitted to do with the credit $$

To: robert b furman who wrote (2239)	2/7/2003 3:23:25 PM
From: KFE	Read Replies (2) \| Respond to of 2317

Robert, There have been many replies to your question about the QQQ puts. There are numerous possibilities as to why someone is doing this but based on experience I do not spend a lot time trying to figure it out because if there is an arbitrage available it is not usually available or practical for the retail investor. The energy is better spent in other areas. I will make a comment about something else in your original post that I do feel strongly about that no one has addressed. my only experience is selling puts as a way of accumulating a stock I desire to own You should NEVER sell naked puts under the theory that you would not mind owning the underlying anyway. This holds true even if you want to own the underlying at a specific price below the current price. If you want to own the underlying-buy it, if you would would like to own it at a certain price- use a limit order but do not use naked puts as a vehicle because if you are right and the underlying takes off you will not own it. I hear some say (even some options books which should be avoided) that I would not mind owning a stock at 50 that is trading at 60 so I will short the 50 puts and own it with a reduced cost. Suppose the stock does drop below 50 then rises but does so prior to the expiration date. You have the profit from the sale but now you are not participating in the subsequent rise which you correctly predicted. Companies and institutions use naked puts for reasons such as buying back stock but the retail investor should only be doing naked puts because he/she thinks they can generate an acceptable ROI and not because they would like to own the stock. Regards, Ken