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Technology Stocks : America On-Line: will it survive ...? -- Ignore unavailable to you. Want to Upgrade?

To: Investor-ex! who wrote (9056)	3/25/1998 11:57:00 PM
From: Jason Cogan	Read Replies (2) \| Respond to of 13594

Investor-ex! Obviously, the position depends on just how far out of the money strikes one writes. As you indicate, the further out of the money, the more one can conceivably make from the short before the "put" kicks in. But the farther out one writes, the less premium you collect. As a package, selling puts against shorting may create less of an immediate loss, given the premium collected on the puts. But the risk of a large stock rise still remains, since all you've "hedged" by is the amount of premium. Also, low delta puts are not likely to depreciate that much on a move to the upside. Hence the name, low delta. Most time decay on options occurs in the week before expiration. Synthetically, short puts and short stock is the same as shorting calls. You take in an amount of premium, giving you a headstart, but still carry all the risk to the upside. Given the bid offer in options as well as the margin charges on short stock, there really is no reason to "synthetically" create the position. A whole host of strikes and maturities in the call options are available. Hope this helps. Jason