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Technology Stocks : Cisco Systems, Inc. (CSCO) -- Ignore unavailable to you. Want to Upgrade?

To: rkral who wrote (64376)	8/7/2003 10:04:27 AM
From: Uncle Frank	Read Replies (2) \| Respond to of 77398

>> "Zero-sum game" implies that both writers and buyers can expect to end up with $0 gain/(loss). I think that means that one party will win what the other loses, Ron. >> "Time-value accrues to the seller" It implies that the seller always starts out ahead. He receives a premium for entering into the transaction, while the buyer has to pay a premium. jmho, uf

To: rkral who wrote (64376)	8/7/2003 11:15:03 AM
From: Ira Player	Read Replies (1) \| Respond to of 77398

OT Uncle Frank has it right. Message 19187041 Nothing can happen in the known universe to change the relationship in options that for every penny an option changes price, there is a winner and a loser of that penny. Ignoring commissions, spreads (you forgot that one and it's not insignificant in options) and taxes, it would still be an even game if option pricing models were perfect, markets were completely efficient and ... They are not. In theory, the option writer (seller) will receive premium and keep some or all of it a significant majority of the time. However, he/she can never win more than the premium, while they can lose significantly more than double the premium (theory - Infinite loss). Covered writers have the advantage that they are losing potential gains, not actual cash. However, the premium or partial premium they get to keep for most transactions is cash in the bank. For my part, I tent to use covered calls in 2 situations: 1. Against a stock I intent to hold for a longer period. I use call writing to enhance the return when the market is moving primarily sideways. 2. Against a winner stock I have held for a long period and do not want to face the tax consequences of selling and still believe is a keeper. Enjoy the ride. Ira