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

To: Jason Cogan who wrote (9057)	3/26/1998 12:26:00 AM
From: Investor-ex!	Read Replies (1) \| Respond to of 13594

Jason, Thanks for your detailed response. All I can add is that, assuming one had written calls vs. puts equal distances out of the money, the premiums, at least on AOL, are about the same (haven't checked in a while but they were). However, if you had the stock short as well, when writing the out of the money puts, you'd also gain the distance between your short price and the put strike, should the stock retrace. There is no such additional gain when the stock falls when holding short, naked calls, plus there is no upside cushion at all, should the position go against you. More to the point, most people here (including me) can't write naked anything -- brokers won't go for it, though I haven't tried to run the paperwork through for that level of options trading in a while. I guess you'd come out a little better if the stock rose axactly to the call's strike at expiration vs. the covered put position, depending on how far out of the money the options were, but the expectation in the first place is the the stock would fall, hence I believe the covered put position is superior for playing the downside. But, you're the pro, and I defer to your wisdom and professional experience. Thanks again!

To: Jason Cogan who wrote (9057)	3/26/1998 12:59:00 AM
From: Gary Korn	Read Replies (1) \| Respond to of 13594

Jason, I have to thank you again for your naked call observation. Like naked puts for bull positions, naked calls for bear positions have several excellent advantages. I know you are aware of this, but I'm just repeating it for all: 1. You take in premium (like an insurance company) rather paying out premium. If the naked call is at all conservative (i.e., out of the money...which in this case is higher than the intrinsic strike price), then you make money -- time value -- even if the stock goes nowhere. 2. The premium you take in by writing a naked call (or writing a put for a bull position) cushions a rise in the stock price. 3. Writing a call uses up much less equity than an outright short. This frees up more equity for other positions. 4. A unique advantage of naked calls (over naked puts) is that it is often difficult to get certain stocks to short. Case in point is AMZN. Very difficult to get shares to short. However, it is easy to write the call. I just covered an AMZN short position today at a small profit. Tomorrow, rather than worry about finding new shares, I'm quite tempted to write April 85 calls and take in 3+ points of premium. I don't have to worry about whether I can get the shares to short. As for the position, worst case, I lose money when AMZN hits 88. Best case, I make money (up to 3 points) if AMZN closes at expiration anywhere below 88. I do this so much now with naked puts that it is second nature. It took you to flip the switch in my brain that said, "eureka, this works in reverse for bear positions." Thanks again! Gary Korn