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

To: Jurgis Bekepuris who wrote (33831)	3/17/2009 12:35:11 PM
From: MCsweet	2 Recommendations Read Replies (1) \| Respond to of 78958

Jurgis, A few questions and comments for you here and then I am done. I apologize to the board for continuing this, but Jurgis has gotten under my skin. 1. No I didn't calculate the risk and returns using real option theory. It obviously doesn't apply since this isn't a power plant? What I am telling you is that I have experience with options, probably more than you do. I bring it up because you accuse me of "parroting common knowledge" without even knowing anything about me. 2. We are not taking about insuring hurricanes. We are talking about writing naked puts on the stock market. Options did exist at Graham's time, and Graham lived through the great depression. Graham recommended a heavy dose of bonds in the portfolio. Do you honestly think he would have recommended selling out-of-the-money put options as an investment? He would have called it speculation 100% IMO. 3. What is your definition of speculative? It appears you think you defining speculation as a "bad investment". This is wrong. It is an investment with a high degree of risk relative to the dollars invested. Out-of-the-money puts are a speculation because you can lose many times your dollars invested, and I expect that Buffett is under water most or all of his entire initial investment (or even more) as of right now. According to my definition, I stand by the claim that selling naked puts is about as speculative as you can get. Many trading shops have blown-up selling out-of-the-money puts. This is even though I believe puts are overvalued on average (due to volatility skew), and that the average margins from doing so are quite handsome. A speculation may have a positive expected pay-off and may actually be a worthwhile business opportunity, but it is a gamble. MC