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Author: Rayvt Big gold star, 5000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 11007  
Subject: Naked puts Date: 10/15/1999 2:10 AM
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I recently heard a cool technique for using naked puts. Presented this way: "Would you rather buy Dell today for 48, or next month for 45?"

Sell a put for a stock that you kinda want to buy. BE SURE YOU HAVE THE MONEY TO BUY 100 SHARES OF IT!!!!!! If the stock goes down and you get assigned, you now own the stock that you wanted anyway, but at a better price.

This works exactly the same as a CC. You getting to keep the premium, and you getting (or not getting) the stock at expiration works exactly the same. I spent a few hours playing with the numbers and writing out all the what-if scenarios to prove it to myself.

And just like [the right way to do] covered calls, you only do it on a good stock. In either case, if you do it with a crap stock, you'll be the un-proud owner of a doggy-dog.

And us like covered calls, if the stock goes up you'll forgo all that profit for the pittance of the premium. So don't do it on a stock that you really really want to own.

And, see you guys, this is where I can't see the logic of covered calls. On balance, you keep the dud stocks and don't keep the great stocks. I always thought that investors wanted to do the opposite---keep the good ones and dump the lousy ones.

Ray
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