To: FtrPlt who wrote (2851 ) 5/18/1999 3:49:00 AM From: michael r potter Read Replies (1) | Respond to
Since there was interest from others, here is the result of the apparent disagreement re: Options. In the initial post, I was talking about selling the $115 call to take in premium and reducing risk. The second post gave the example of a 1000 sh. position and selling the calls. If puts were sold against that 1000 share position it would increase the risk equal to the #of puts sold, [minus the premium over intrinsic value]. If 10 puts were sold against 1,000 shares long, it would be like taking on the risk of another 1,000 sh. [minus premium over IV]. That is correct as stated. I was talking about selling calls against an existing long position [possibly for someone with a very low cost basis that would not sell at todays price but who wanted to take in a generous premium for protection]. FtrPlt was talking about the risk profile for someone taking a position in SFE, then selling the call vs. the strategy of just selling the deep in the money put which is like being synthetically long. Lets try again. If you already own SFE stock and want to reduce risk, selling calls will do it. If you sell puts instead, you increase the risk. But, if your choice is to buy SFE and sell the calls, vs. the strategy of simply selling deep in the money puts [and not being long the stock], the risk profile is the same. I was talking about reducing risk by taking in premium on an existing position. FtrPlt is talking about the risk profile going synthetically long by selling the put [not against an existing long position]. We were just talking about two different things. Hope this clears it up, Mike
