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Technology Stocks : Micron Only Forum -- Ignore unavailable to you. Want to Upgrade?

To: TREND1 who wrote (33526)	5/16/1998 11:52:00 AM
From: Knighty Tin	Read Replies (2) \| Respond to of 53903

Larry, Actually, you can get put on the short side of the credit spread, not called, but the same basic idea. Somebody knocks you out of the short put and places you into the long stock. But that is not before you have a profit, necessarily. If somebody dumps stock on you, it means that your pure put premium, which you were short, has gone to zero. You have made a large profit on the put, though you are taking a hickey on the stock. Since you own the lower priced put, the hickey cannot be too great and the lower priced put has picked up some pure premium, either lessening the loss or increasing the profit. BTW, the long stock, long put you now hold is a synthetic long call and you are in a bullish position at a lower price. That doesn't appeal to you TA guys, who want to buy stocks after they are overpriced, <G>, but it is a nice situation for those of us who are contrarians. Or, at least, it is a nice position considering that it is the worst possible outcome for your spread. I don't look at bid or ask prices on the straight options. I look at where I put the spread on and where I can remove it right now. That is usually a very different number than the bid to offer on the straight positions, especially for those trading size. Though a bit late in development, the spread options market in securities is starting to become a market of its own, correlated to but not determined by the straight market. It has always been that way in commodity options. However, you are correct on one underlying assumption. When you put on a bull credit spread with puts, the stock going down is the worst thing that can happen to you. My point is that it is not as bad as it looks from a standstill point of view looking toward expiration, because the options are fungible and have these characteristics that reduce potential losses during the holding period of the spread. Active and smart traders never end up with standstill maximum negative returns on spreads. However, they do have a lot of turnover and their Boards of Directors, bosses, and/or partners holler at them because those sad folks have read articles by brain dead reporters who believe all turnover is bad. Been there, done that. In fact, am there, still doing that. <G> Larry, as an active trader, options ought to be your thing. Much less risk and much better returns than playing the stock. If you want to be more equity-like, use deep in the moneys, which are still a lot cheaper and less risky than trading the stock. MB