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Strategies & Market Trends : Three Amigos Stock Thread -- Ignore unavailable to you. Want to Upgrade?

To: Sergio H who wrote (7643)	8/12/1998 9:06:00 PM
From: Cary C	Read Replies (1) \| Respond to of 29382

Ola amigo, Doesn't look like there were many takers in Sonic here. Nice move today. Looks some of that small float is starting to disappear. Ok back to work for me. Cary

To: Sergio H who wrote (7643)	8/12/1998 10:54:00 PM
From: Sal D	Read Replies (2) \| Respond to of 29382

Sergio, I am not saying covered writing is a bad thing, as with all option strategies there is always a good and bad time for all of them. This is just another perspective (don't want the thread to get boring) Covered Writing is a good strategy because most options expire worthless. This is a commonly held belief, but illogical. If most options expired worthless, then there would be excess returns to be made from selling options. If this was true, then in a competitive market place money would rush in to realize those excess returns.To earn these returns, many options would be sold, driving down the option prices to the point where excess returns were no longer available. At such a point, it would no longer be true that most options expire worthless. The fact is most options do not expire worthless. The CBOE publishes an annual statistics booklet which discloses the percentage of CBOE equity options in customer and firm accounts which are closed prior to expiration, exercised and expired worthless. Investors should not write calls on stocks they believe will appreciate beyond the option break even point. The covered write strategy offers a different set of trade offs then outright stock purchase. A stock purchase has a break even point price equal to the purchase price, and has unlimited profit potential. The covered write, has a lower break even price, profits in a unchanged price environment but has limited profit potential. both offer the investor with different trade offs, no one knows in advance which will be better or even profitable, investors must select the strategy that best suits there risk preferences. The options market presents investors with more alternatives, there are no excess returns, with this in mind it will make it easier to move ahead with the work of investing, researching opportunities and making decisions. Joe