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Strategies & Market Trends : Stock Attack -- A Complete Analysis -- Ignore unavailable to you. Want to Upgrade?

To: dennis michael patterson who wrote (16283)	10/2/1998 11:42:00 PM
From: Judy	Read Replies (1) \| Respond to of 42787

This is the type of market to be selling naked calls, close to an intermediate top and two weeks away from expiry. As we approach expiry the options tend to track more closely with the price movement of the stock. I sometimes sell puts and calls during the 7-10 days prior to expiry to exploit the leverage provided as the time value erodes exponentially while the intrinsic value dominates. Having said that, there are several things one can do to mitigate the risks of selling naked calls: 1. Understand the risk of the naked call is the same as going short the stock at strike plus prem if assigned, that is the worse case should one not close the position. 2. One can sell the naked call, and leg into selling naked puts to complete a straddle or vice versa. Your protection would then be the sum of the prems for both legs. On a volatile stock like DELL, the prems are rich and one can make out well, if DEll trades within the interval covered by the straddle. 3. One can also short a combo, that is, sell naked calls at one strike and sell naked calls at another strike ... quite profitable if one can estimate the trading range of the stock in the interval of time before expiry. These are some basics and there are variants. Mull over what I have said, and then either paper trade or do a SMALL trade with real money. I suggest the second, there is no substitute like having real money on the line. One makes decisions differently when paper trading vs real trading, and I don't give a fig what others post at SI. To put it bluntly, I noted your convo with Bob Graham a month or so ago on naked calls. That you were easily dissuaded said you were not ready to do so, and it was best that you did not.