Silicon Investor (SI) -- The First Internet Community

STOCKTALK

We've detected that you're using an ad content blocking browser plug-in or feature. Ads provide a critical source of revenue to the continued operation of Silicon Investor. We ask that you disable ad blocking while on Silicon Investor in the best interests of our community. If you are not using an ad blocker but are still receiving this message, make sure your browser's tracking protection is set to the 'standard' level.

Technology Stocks : Dell Technologies Inc. -- Ignore unavailable to you. Want to Upgrade?

To: GRANOLA who wrote (109268)	3/12/1999 3:17:00 PM
From: freeus	Respond to of 176387

Rest of the IBD article on covered calls. However, if you hold the covered call until April, you effectively tie up your investment capital. That's why a bull put makes sense. No additional capital is required. It works this way: you buy a Cisco January (2000) 80 put at 9 and write a Cisco Jan (00) 120 put at 29 for a net credit of 20 per share. By selling the cisco Jan 2000 120 put, you are agreeing to buy 100 shares of Cisco at 120 per share until the option expires in Jan 2000. If the stock is above that price in Jan 2000 you will simply keep the net credit received when the position was established. By purchasing the Jan 2000 April 80 put you have bought the right to sell your Cisco shares at 80 per share. Think of the Jan 2000 80 put as an insurance policy. Ideally, if the stock is above 120 by Jan 2000 both puts will expire worthless and you will simply pockeet the net credit received. Assuming you have paid for the original 100 shares of Cisco, you would have sufficient collateral from the stock position to cover any margin requirements for the bull-put spread.So what we end up with is a covered call write, followed by a bull put spread. Note the bull put spread doesnt expire until January, some eight months later. Its important when using this type of follow-up strategy to extend the time horizon. You are taking a position that will allow you to participate in future gains in the underlying stock, so give the stock time to do what you are expecting. End of IBD article Freeus