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Politics : Ask Michael Burke -- Ignore unavailable to you. Want to Upgrade?

To: upanddown who wrote (119448)	10/1/2009 12:49:32 PM
From: Knighty Tin	1 Recommendation Respond to of 132070

John, Thanks. You moved while I dawdled. It is a great strategy that works a lot of the time. The in the money part protects you more than the option and 10% seems o.k. if you are buying quality. What I like is the special taxation for dividends and long term gains. Everyone in the stock business compares buy writes to buying the stocks alone. It is really a different strategy, as you are taking less risk for less reward. Buying stocks straight is much more speculative and has to offer greater returns. That is why I would never act as portfolio manager for an "overwrite" program in a mutual fund or managed portfolio. I would be tagged for the profit or loss on the options only, which I consider a mug's game. If I only win when the issues head south, then I want to be able to buy puts, which places the risk/reward ratio in my favor. However, as a broker, I had two clients who totally kicked butt writing naked Leaps. And the firm was scared to death of them. I've told this story before, but it is still funny, IMHO. One of the clients had sold a naked Leap at a high price, $27 or something like it. Over the next two years, the stock price had gone to hell in a handbasket and the Leap was going for 25 cents in the market. I got a letter from my compliance department saying, in effect: "Warn your client immediately that he is about to lose all of his investment on this position. By allowing clients to engage in such speculative activity, you have cost them a lot of money and are subject to disciplinary action. Call your client immediately and we will discuss this matter after you do." I replied that I would call my client, but I would not tell him he is losing money on a large position where he is making nearly 100% profit. I want him to know that at least one member of this firm understands his investments. And folks wonder why I was so popular at Smith Barney. The firm harrassed this client so much behind my back that he eventually left for another brokerage house. That was not why I left the sell side, but it was sure not a reason for staying on. <G>