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Non-Tech : APCO Automobile Protection Company -- Ignore unavailable to you. Want to Upgrade?

To: Amigo Mike who wrote (3112)	1/30/1999 12:54:00 PM
From: Sal D	Respond to of 3351

Mike, From post #3084 <Started with APCO at 10 riding down to 5 after luckily selling covered calls at the 10 level. Since that point ,have purchased several thousand shares via selling puts at 7.5 level and continue to sell puts at trailing strike prices. Based upon the info in your posts plus my own DD, it has been fun being very leveraged in this stock. At current levels I have been reducing leverage covering naked puts sold at 10 but still think this has a long way to go.> And from your post <I am very much intrigued by it ...... my only ????? is how much capital the broker wants to hold by having the naked put position. The gentleman who posted about said he used that style to acquire stock on the way up while protecting his position. Very nice indeed.> You know how good I am with options (LOL) I have been getting better, at least I think so. Intrigued, yes. And agree very nice. I followed him up until He says: <At current levels I have been reducing leverage covering naked puts sold at 10> Currently my option agreement does not allow me to write uncovered puts or calls. Joe

To: Amigo Mike who wrote (3112)	1/30/1999 6:53:00 PM
From: William Nehls	Read Replies (1) \| Respond to of 3351

Sorry but have been away. The basic rules call for the following collateral requirements on naked puts. It is equal to 20% of CURRENT stock price plus the put premium minus any out of money amount subject to a minimum of the stock price. Example Stock=50 and shorting(writting) option with 45 strike and premium of 3. Collateral = 20% of 50 ($1000) plus $300 (premium of option) less $500 (difference between stock at 50 and strike of 45) or $800. If calculation is less than $750 minimum applies (15% of 50).Each brokerage house can apply their own more conservative rules. I know ETrade uses 40% of stock price. Be sure to also check minimum levels also. Good book on all this is Lawrence McMillan's Options as a Strategic Investment. Puts are Chapter 12. When I mentioned reducing leverage I simply meant that I closed out some trailing naked puts. Remember this is a short position that brings cash into the account (offsets any margin position saving interest) . Also realize as a stock moves up nicely as APCO did that your buying power increases making the total position look very good as the collateral requirements decrease on the lower strike puts. However if you continue to use that increased power to short more you create a huge leveraged position that can really hurt if the stock were to drop suddenly due to profit taking. You don't want to have to deal with a margin call at the wrong time. Very similiar to over extending by buying more of a rising stock on margin but the leverage factor on options is MUCH worse that on the stock.