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To: Zbyte who wrote (4541)	6/27/1998 7:30:00 AM
From: steve goldman	Respond to of 12617

A covered call/put would be considered a hedge. ie. you have xx points in MRK. You think it will sit tight or move lower but you dont want to sell and pay taxes..you sell some calls..you get y points and you reduce your cost basis by y...if it moves higher, THEN you either have to let them take your stock or you ROLL out, buy back the short and sell farther out, again keeping premiums...but you cant ever get hurt too bad (outside of 'missed opportuntiies). A naked call is someone who thinks the stock is going to zero or a nake put writer things the stock is gong higher. why would you use it? AMAZON was 50, someone who wrote NAKE PUTS (the seller thinks its going higher, buyer thinks lower) for, lets make up a number, 12. Now that the stock has gone up 100% in a few montsh, those puts are alsmost worthless (strikes and months are very important but we're talking generalities here) they go from 12 to 1 or 1/2 something small...So the seller sells at 12 and buys back at 1/2 for 11 1/2 profits...thats why! But also note the Call writer who felt that AMZN at 50 was 'way overvalued" and 'couldnt go any highe' sld calls for lets say 10 and are not at 40, 50 for a 40 pt loss.... so your max upside when you write a nake call is the prmium you sell it for...you sell for X (10) if it goes to zero, max you make is 10. but you have unlimited (calls) or signficiant (put) exposure if you get it wrong.. naked call writing is like betting the stock long or short yet with some time premium. Some use them in leui of stock but that can be MUY, VERY , MUCHO dangerous because people trade 5 calls here, 5 calls there, 10 here, and they forget its same exposure as 500, 500 and 1000 shares of stock. If you dont go off deepend, and trade as many calls (100share/contract) as you would stock, not get too carried away, it can be useful, given premiums andinterest earned on free cash. Personally, I'd like to stay away from discussing options up here since they are VERY VERY complicated. -Regards Steve