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Strategies & Market Trends : Contrarian Investing -- Ignore unavailable to you. Want to Upgrade?

To: fedman who wrote (413)	10/2/2006 10:46:15 AM
From: pcyhuang	Read Replies (2) \| Respond to of 4080

fedman: The real risk of a naked call option writing is what statisticians call the "tail end of a normal curve" in the science of probabilities. Translating this into layman's terms, it means that the risk is in the least expected occurrences -- e.g., suddenly a take over announcement or a gap up in the stocks for some other unexpected reasons. I have seen fortunes lost in these types of least-expected events.... pcyhuang

To: fedman who wrote (413)	10/3/2006 4:52:35 PM
From: Kirk ©	Read Replies (2) \| Respond to of 4080

I mean, the stock has a 52 week high of lets say 40.00. It's trading and 30.00 and you think it's going lower because you see weak fundamentals. You write a 32.50 call for 2.50 for about 3 months out. There's no way I'm going to waste my money on a $40 call. What I do is if the stock gets to 32, I buy half the underlying. Then if it gets to 33, I buy the other half. Or I buy it out if it is near expiration. What do you do if right after you buy the second half at $33 some news is released that gaps the stock down 30%? Lets say someone gets sick at the coffee house and they can't figure out why such as happened with Spinach. You were right but your timing was off and you lose big time. Likewise, a buyout for a 30% premium would also hurt...