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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Madpinto who wrote (741)	2/24/1998 10:57:00 PM
From: Brad Griffin	Read Replies (1) \| Respond to of 2241

It's conservative vs buying puts and calls to me. I don't care about the upside loss because my premium + profit when I get called out averages 15% to 30% for a 4 to 6 week time period. I want monthly income and cash flow. My risk is if the stock tanks. Then I employ repair strategies outlined by McMillian to buy back my calls and sell the stock or sell another call if I believe the stock has bottomed out. I started with options buying calls and puts and got killed. I now prefer to sell options rather than buy them, however, I'm now paper trading calls & leaps for stock splits, ie DELL, LU, AOL.

To: Madpinto who wrote (741)	3/6/1998 12:59:00 AM
From: Schiz	Read Replies (1) \| Respond to of 2241

I agree that covered calls and naked puts offer similar risks. You could reason(and I think I believe) that CCs and NPs are actually less risky that buying stock. If you buy 1000 shares of a stock at $18 and sell 10 covered calls six months out at a strike price of 20 at $3 you basically bought the stock for $15. You upside is limited to $20 (+33%). That's not bad for six months. It doesn't offer you any downside protection although it does (in theory) allow you to purchase at a price below market. Is the cap on the upside worth the discount in the price. If the company releases some really bad news and you want to get out, you may be forced to buy back the option when there is still a little time value left.In this situation you didn't actually get the shares for $15. Although you will be able to buy the options back for a considerable amount less than you sold them for (assuming the stock has dropped in price a bit and at least a little time has passed) I would think in most cases the extra money you made on the calls will at least offset the commissions for the calls(and often times result in losing less than if you had just bought and sold the stock at the same dates without selling the calls). Bottom line on naked puts is only sell them for a company that you are willing to buy at (or very near) the current market price and hold for a significant amount of time. If a stock is going for $22 and you think it is fairly valued and decide to purchase it you might think about selling naked puts. If the stock goes down you get it for cheaper than you were going to buy it for anyway (plus you get the time premium). If it doesn't go down you pocket the cash you got from selling the option. I'm looking at this as a way to use my margin equity to increase profits. It seems less risky than buying stock on margin. I have had very limited experience with options. I'm looking into the above strategy. I think the hardest part is limiting your upside potential. Every time I buy a stock I want it to double by next year but that doesn't happen all that much. I would be interested in any comments about this. Does it make sense? Also with the covered calls if after six months the stock is still below the strike price and you still feel confident enough in the company you can sell more covered calls. If the stock is a small amount over the strike price, say 21, you could buy back the call for about $1 (assuming it didn't get exercised) and sell the next high cc. I'm trying to figure out what the best time interval to use is. It seems the time value deteriorates most rapidly the closer you get to expiration. I think it may be most beneficial to sell calls 1 or 2 months out providing the commission is not too costly.