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To: Jill who wrote (117561)	4/14/1999 6:41:00 PM
From: Michael Bakunin	Respond to of 176387

My original post was very short, and not too obtuse -- #reply-8915322 -- and Ed still appears to think his strategy is risk-free. To each his own, I suppose. Me, I'm happy either way: if I'm wrong about the market, I'll do great in my professional life, which is leveraged to same. However, as the market makes me very nervous, I prefer to hedge my bets right now. It has not been a terrible strategy these last three months -- after all, my cash has beaten this thread's favorite over that time frame. I freely admit that that is luck, but if things really go south, I will have something to cushion the blow. -bakunin

To: Jill who wrote (117561)	4/14/1999 6:55:00 PM
From: Chuzzlewit	Read Replies (1) \| Respond to of 176387

Jill, of course the strategy is risky, but it needs to be broken into parts to understand the risk. The risk in selling the naked put is that the stock will go through a decline and stay down. Thus, you will end up holding a stock at a price less than market. But this is less risky going long to begin with because the premium has decreased the cost of the stock. The second part of the strategy should be treated separately from the first. If you buy stock and continue to leverage yourself you have indeed created a riskier position to the extent of the leverage -- that's the source of the additional risk. Alternatively, buying a naked call is risky. Using borrowed funds makes it riskier yet. Ed's strategies work beautifully in a bull market, which is what ed has been experiencing. Michael's focus is on the downside, and he is correct in pointing out that should the market suffer a substantial decline a leveraged position is riskier than a straight long position. No pain no gain. So what else is new? TTFN, CTC