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Non-Tech : Bill Wexler's Dog Pound -- Ignore unavailable to you. Want to Upgrade?

To: chester lee who wrote (861)	4/28/1999 4:19:00 PM
From: Daniel Chisholm	Respond to of 10293

...my broker will not let me do it... Hi Chester, I am in the same boat as you (not allowed to write naked calls), but I intentionally omitted this real-world factor because I think it is stupid ;-) Write a covered put if you understand what you're doing but your brokerage doesn't ;-), however I was trying to emphasize what in fact it was that he was proposing. It seems that many people only half-understand options, and think there's a bit of "something for nothing" available with the different and varied combinations that you can construct. When you think about a covered put (short the stock, write a put) in terms of the risks and payoff that its synthetic equivalent naked call position (write a call) carries, you might see something less attractive than you otherwise thought. Same thing goes for when people analyze the nature of covered calls (buy stock, write calls) - they somehow find it to be (or there broker helps persuade them that it is) an attractive, conservative position that enables one to "earn premium". Yet the same people (and their brokers, and their brokers' compliance departments) are horrified at the thought of writing naked puts, since that is a limited profit, large loss speculative sort of position that only aggressive traders and operators would engage in. In fact, it was writing naked puts (on index options) that bankrupted Victor Niederhoffer! And yet, a covered call is synthetically equivalent to a naked put. I apologize if I am preaching to the choir here. - Daniel