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

To: tyc:> who wrote (4914)	6/13/2011 7:18:16 AM
From: dealmakr	Read Replies (1) \| Respond to of 5891

down market can be very confusing to me. Say; "I was making money selling covered calls on SPY when the stock was rising. One-month o/m calls Currently I am short SPY, subject to a buy-on-stop to protect against trend change. I see no reason not to continue selling calls for income, just as I did when I was long. And perhaps the same principle applies to any stock position, long or short. Can one not sell calls for income, whether long or short the stock? Downside protection is afforded by a stop loss on the stock, long or short, but the sale of calls for income need not be interrupted provided the buy-on-stop quantity is adjusted. I sure would appreciate your comment, especially if I am mistaken. I acknowledge this was contemplated in an earlier post. I acknowledge also that naked calls use additional margin." Hi tyc, Selling calls for income on a long position of the underlying for income is a far less riskier trade than selling naked calls as you know. Selling naked calls especially on an index related ETF like SPY does open you up to the possibility of a rapid change in trend, like what do you do when the market has a gap open of 20-30 handles. Even if you are short SPY itself that will open up the chances of your buy stop being hammered by an adverse event and additional margin requirements that can come very rapidly on naked calls, so you have to really be ready to adjust your position accordingly Naked calls can be used as a way of producing income so long as the risks are understood and if assigned you are happy to be short at that price or have the ability to roll out or adjust the position. I use naked calls on SPY or IWM to position as to where I would like a short on the underlying if exercised. Also with the increased volatility in the markets now, maybe look at the weekly series instead on the monthly as the swings are getting larger. The biggest risk on naked calls IMHO is an adverse event on a high beta play where you get blown out of the water by a buyout, news event or something and happens much more in the stock universe than the single index ETF's like SPY or IWM and not double or triple ETF's which are a crapshoot and better for daytrading than options writing IMHO. Using index related ETF's like a short position in SPY to hedge against long positions can work to protect you a bit, but every position should be adjusted to the risk assumed. You can see from my prior posts about some of the options trades that I have going like CSCO,XRX,HBAN etc. CSCO is to me being priced like a stock going out of business and with all of the selling going on am looking to not become overly long until some stability occurs hence taking some losses and reducing exposure is a part of the game, also scanning for the possibility of buying calls there longer term. XRX has been another one that just keeps drifting down and my options writes haven't kept pace with the total position exposure. That said on XRX, I do use some naked calls on this one to offset my naked puts as from what I see there is if the stock changes trend I should have the time to either buy the stock to convert to a covered call position or adjust the exposure accordingly. The naked calls just provide a little bit more of the ability to glean some premium. I guess that the whole point is in any options trade covered or naked, make sure that the risk/rewards are understood and stick by your guidelines as far as using your stops. Any trade can come apart very rapidly with a CC by having the underlying getting sold down and by a naked call having a rapid more against you. There will always be another trade or opportunity if you can stay in the game. Good Trading dealmakr