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Author: 1000 Big funky green star, 20000 posts Top Recommended Fools Feste Award Nominee! Coverage Fool Supernova Phoenix 1
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Subject: Re: Getting Paid While You Wait Date: 6/3/2003 2:47 PM
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Hi Naj,

Again, to paraphrase xfatott - If you think the stock is going down $5-15, shouldn't you be buying the puts?

I just don't agree with that. It is a matter of risk. I do not sell puts because I believe the stock is going down, I do it because I believe the stock is close to fair value and the put sold gives me an extra margin of safety.

I sell them because, I believe my research tells me even if I am wrong about the intrinsic value of the company and the stock drops and I have to buy it, I am buying it at a price point that will allow me to see good future appreciation.

As for value, if I can recieve a 10% premium for a month that annualized out to 120% a year. Or even 5% which annualizes out at 60% then surely this is a market in which it is worth participating.

Personally, I see no downside to using this as part of one's investment strategy. Sure, one should understand all the risks involved and should have done his homework on the underlying security. But I still don't see an argument posted yet that convinces me that this is a risky strategy or one that is not worth the effort to use.

Of course, this is just my opinion

tom

tom
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