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Strategies & Market Trends : The Covered Calls for Dummies Thread -- Ignore unavailable to you. Want to Upgrade?

To: alanrs who wrote (5147)	4/17/2011 3:21:12 PM
From: lml	Respond to of 5205

I typically don't rely on margin when writing puts, I agree. I do most of my trading in my retirement accounts, which require cash collateral; no margin. Benefit of using a retirement account to trade options is that I don't worry about tax implications, reporting, etc.. Makes life simpler. Trading in a retirement account forces the discipline of never being on margin. It's not for the more aggressive trader, who desires to play a bigger game with his/her money, but it's the appropriate rule to either adhere to, or be bound by, the more prudent conservative trader. JMO. Being short puts on margin is a very dangerous & potentially costly game. Been there in 2001 & learned my lesson.

To: alanrs who wrote (5147)	4/18/2011 2:42:27 PM
From: ValueGuy	Respond to of 5205

Makes perfect sense to me to not rely on margin...though the adventurous side of me (translation: foolish and impetuous) is very tempted to make relatively easy money on loading up on selling of OTM puts at decent yields...though I think days like today would have blown me up! So just to clarify: If I write 10 $1 puts (premium of 0.13 and underlying stock price of $3 per stock), on margin this would have required me to pony up $230 for the margin requirement and $100 for the margin call. However, if I wanted to ensure that these puts are cash covered, I should put aside an extra $670 in order to make the amount of cash available $1,000? (i.e. 1,000 stocks at $1 each) Sounds like technical analysis is very important in writing calls/puts so I definitely have to brush up on this, though I can get basic TA such as RSI on my brokerage account...the rest I'm not so sure yet... One thing I learned (the hard way) is that there is only so much theory you can read about...nothing beats a good old fashioned practice run, tweaking that to make it work, and tweaking it some more to make it work better...