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Strategies & Market Trends : How To Write Covered Calls - An Ongoing Real Case Study! -- Ignore unavailable to you. Want to Upgrade?

To: NateC who wrote (10103)	3/27/1999 3:07:00 PM
From: rrufff	Respond to of 14162

Interesting discussion, could you enlighten me What brokers will enter CC transaction on a NET basis as you describe? Discounters vs. full service? If there are discounters, what is the process as the ones I've worked with have no screens for this type of NET trade. As they are in effect making 2 trades in 2 separate markets, what makes them willing to do this? Brokers are the house and they make money not taking this type of risk. Do you in effect pay for this risk, by just accepting the spread, i.e. buy the stock at the ask and sell the call at the bid? To me that would be an unacceptable price accept in extremely liquid options. Thanks!

To: NateC who wrote (10103)	3/27/1999 3:36:00 PM
From: tuck	Read Replies (1) \| Respond to of 14162

Nate, That's my understanding of how it works, yes. Of course, on the NYSE there is no bid/ask for a stock. I would say that trying to buy the stock at ask but sell the call at ask might make the buy-write less likely to execute than buying the stock near ask and selling the option near bid. Using your numbers, a net of 48 1/2 would be more likely to execute than 48 1/8. The latter net would force the broker to leg into the position, something he may not want to do any more than you do, thus causing him to maybe not execute it. If he does go for it, he could use one of those scenarios you mention, depending on what's available for him to shave sixteenths on: the spread on the option or the spread on the stock, or both, or movement on one or both (something he might have be able to anticipate or manipulate, with his connections), some combination of the above, etc. My guess is that you wouldn't do much better than a net of 48 3/8s in the real world. Brokers might be willing to give away or risk more, but they'd likely charge a higher commission. I don't see them giving away half their spread for nothing. Cheers, Tuck