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Strategies & Market Trends : Calls and Puts for Income -- Ignore unavailable to you. Want to Upgrade?

To: dealmakr who wrote (4590)	8/22/2010 9:51:31 AM
From: skinowski	Respond to of 5891

Dealmkr, thanks for your interesting comments and willingness to share. About PFE - yes, I tend to focus on front month options, because the time value deterioration accelerates towards the end. However, you made me think. Clearly, sometimes it makes sense to sell longer term puts, especially after a significant decline - since more of the volatility spike can be captured this way, and maybe at lower strike levels. Leveraged ETF's use futures and options. After a decline, the number of contracts that the fund can purchase is smaller. That creates a disadvantage. If the ETF declines, at the bottom the fund can buy fewer contracts, and the trader has less money working FOR him. Even if the price of the underlying index or commodity will come back to the original level, the ETF will not. In fact, it makes sense to exploit this feature. Sometimes when I want to have short exposure, I short "long" ETF's, like SSO. Didn't try shorting the "short" ETF's, near (putative) bottoms (which would look like blow off tops for the short ETF's), but thinking of doing that. Appears to make sense. One big no-no for me are naked calls. This is where the risk is truly unlimited. I am still impressed with what happened to shorts in 1998-2000, when many traders shorted internet stocks and lost several times the original price of the stock... g/ng. On the few occasions when I sold naked calls, I bought OOM calls to protect them.