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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: of 11010  
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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Author: SemperAugustus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 622 of 11010
Subject: Re: Naked puts Date: 10/15/1999 8:13 AM
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I recently heard a cool technique for using naked puts

Ray,

I think some of the confusion on covered calls vs. naked puts as equivalent positions is based on your terminology. What you are advocating I've always seen referred to as "cash-secured puts". And you're right that they are analagous to covered-calls.

I think of "naked puts" as: "Well, I got $100,000 worth of margin room, why don't I buy myself some puts on AOL and DELL and AMZN?" And 2 months later when you get assigned because the underlying and all of your portfolio have slid 50%, there you stand like the emperor in his new clothes.

Naked as a jail-bird.

Semper

P.S. Like ttm, I can't get approval for "naked puts" either, despite a whack of cash in my account. So I do the CC version of it.

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Author: ttm Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 625 of 11010
Subject: Re: Naked puts Date: 10/15/1999 10:51 AM
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<I think some of the confusion on covered calls vs. naked puts as equivalent positions is based on
your terminology. What you are advocating I've always seen referred to as "cash-secured puts". And you're right that they are analagous to covered-calls.>

Naked puts = cash secured puts. 2 terms for the same thing.

<I think of "naked puts" as: "Well, I got $100,000 worth of margin room, why don't I buy myself some puts on AOL and DELL and AMZN?">

No, SELL, not buy.

AL:LA

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Author: jim7485 Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 629 of 11010
Subject: Re: Naked puts Date: 10/15/1999 1:30 PM
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Ray, you are making the assumption that all investors share your goals. NOT TRUE. Some of us have LTBH stocks and a short term trading account. Others still would prefer just a trading account. I was introduced to these ideas in Harrison Roth's book LEAPS. He calls it the LEAPS Money Generator. 1) Sell a Put- if the stock goes up, keep the premium. 2) if the stock goes down, get assigned and 3) sell a put AND a call. If the stock continues down, you are long and wrong and poorer for your choice, but at a lower cost basis than if you had just bought the stock. I use this stategy in a trading account. Sometimes I make money, and somtimes I lose. Just like you. jim7485


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Author: SemperAugustus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 630 of 11010
Subject: Re: Naked puts Date: 10/15/1999 3:48 PM
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<I think of "naked puts" as: "Well, I got $100,000 worth of margin room, why don't I buy myself some puts on AOL and DELL and AMZN?">

No, SELL, not buy.

AL:LA

My mistake. Agreed, SELL, not buy.

Nevertheless, naked puts are equivalent to covered-calls only if all the necessary cash is set aside. Otherwise they are a highly-leveraged version of covered calls, with a lot more risk.

I can't sell puts, so it's a moot point, but why does Rayvt insist that selling puts might make sense but selling covered calls doesn't?

Semper


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Author: dswartz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 631 of 11010
Subject: Re: Naked puts Date: 10/15/1999 4:23 PM
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I can't sell puts, so it's a moot point, but why does Rayvt insist that selling puts might make sense but selling covered calls doesn't?

Because when you sell a CC, you are hoping the stock doesn't go up (or at least not above your strike price), which is kind of against the whole point of owning the stock to begin with. When you sell a put, you are hoping it goes up (since no-one will exercise the option then). His point was that for a CC, if the stock tanks, you are still holding the stock, but if it soars, it's taken from you. Whereas for a put, if the stock goes down, you get to buy it at a lower price (presuming it is a stock you were willing to own at that price, but it was too high when you wrote the put).


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Author: InfernalElk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 632 of 11010
Subject: Re: Naked puts Date: 10/15/1999 4:34 PM
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Because when you sell a CC, you are hoping the stock doesn't go up (or at least not above your strike price), which is kind of against the whole point of owning the stock to begin with. When you sell a put, you are hoping it goes up (since no-one will exercise the option then). His point was that for a CC, if the stock tanks, you are still holding the stock, but if it soars, it's taken from you. Whereas for a put, if the stock goes down, you get to buy it at a lower price (presuming it is a stock you were willing to own at that price, but it was too high when you wrote the put).

This is not quite correct, if I understand you, particularly the part about "you get to buy it at a lower price". In the case of a cash-secured short put, you are obligated to buy the stock (if assigned) at the strike, not lower as you seem to suggest.

If you look at the P/L diagrams at expiration for covered calls and cash-secured short puts, they are identical, assuming the same strike price. If the scenario for one case makes sense at a given strike price and expiration, it should follow that it makes equal sense for the corresponding scenario.

Period.

Now, the question remains, whether or not either of those scenarios makes sense to a given investor in a given situation with a given investing style. But that's another matter.

cheers

- *nf*rn*l



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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 633 of 11010
Subject: Re: Naked puts Date: 10/15/1999 4:43 PM
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<<I can't sell puts, so it's a moot point, but why does Rayvt insist that selling puts might make sense but selling covered calls doesn't?>>

Uh, read this..... I notice that nobody bother to follow up with a reply or discussion.

http://boards.fool.com/Message.asp?id=1380046000100034&sort=postdate

Also, there is passing reference in McMillan and a couple of other option books. Not in any great depth, just a statement that covered calls are equivalent to naked puts, but with more commission and higher markup.


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Author: SemperAugustus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 634 of 11010
Subject: Re: Naked puts Date: 10/15/1999 4:43 PM
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Infernal Elk said:

If you look at the P/L diagrams at expiration for covered calls and cash-secured short puts, they are identical, assuming the same strike price. If the scenario for one case makes sense at a given strike price and expiration, it should follow that it makes equal sense for the corresponding scenario.

I concur. Investors are probably more likely to sell covered calls that are slightly OTM (above spot price), and to sell naked puts slightly OTM (below spot price), so the two scenarios are usually different because of different strike prices. But there's no reason you can't sell CC with strikes ITM, or sell naked calls that are ITM.

Semper


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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 635 of 11010
Subject: Re: Naked puts Date: 10/15/1999 4:54 PM
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<<If you look at the P/L diagrams at expiration for covered calls and cash-secured short puts, they are identical, assuming the same strike price. If the scenario for one case makes sense at a given strike price and expiration, it should follow that it makes equal sense for the corresponding scenario.>>

Just so.

But (and this is what came out of an options book) the transaction costs are not identical:
Covered call:
* Buy the stock, pay commission & spread
* Sell the call, pay commission & spread
* (If you get called, pay commission)

Naked Put:
* Sell the put, pay commission & spread
* (If you get assigned, pay commission.)

I also suspect that the call is relatively more expensive than the put (high demand = high price, low demand = low price), but don't really know.

Looks to me like CCs generate extra commissions for the broker. How about that!--and they probably didn't even notice, huh? Plus you get hit with two spreads, one on the stock and one on the option.

Ray

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Author: InfernalElk Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 636 of 11010
Subject: Re: Naked puts Date: 10/15/1999 5:12 PM
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Ray's point about commissions is a very good one, but possibly less of an issue than when McMillan's book first came out, given the decline of commission rates over the years. Spreads are another issue, but again, it's probable that spreads are usually smaller (again) than when those books were written.

However, the comparison Ray makes is between a buy-write and a cash-secured short put (a buy-write being the buying of a stock and writing a call established approximately the same time and considered as a single position). The commissions are slightly different if one is writing a call against a long-standing underlying position, and the differential in returns from the instant of writing the option are noticable between the buy-write and covered call cases. Slight, but noticable.


I also suspect that the call is relatively more expensive than the put (high demand = high price, low demand = low price), but don't really know.

Looks to me like CCs generate extra commissions for the broker. How about that!--and they probably didn't even notice, huh? Plus you get hit with two spreads, one on the stock and one on the option.



While demand for options certainly influence the premiums, by far the most important element is that of volatility and assumed direction of the stock.

In any case, one would hope that commissions are taken into full consideration (particularly when writing smaller lots of contracts!) before one decides that the effort is worth it.

cheers

- *nf*rn*l

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Author: ttm Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 637 of 11010
Subject: Re: Naked puts Date: 10/15/1999 5:21 PM
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Naked puts (IMO) require larger cojones than CCs on first examination but I feel they are actually more intelligent than CCs for the following opinionated reasons: (And I disagree with characterizing them as leveraged; they are anti-leveraged because you are forced to be in cash; the "cash-secured" part. And that cash can be generating MM income just sitting there)

1: You haven't become committed to the potential loss in value of the underlying because you don't own it. You're not sitting there with your shs all tied up. Though you can buy back a covered call should the underlying fall, generally people sell OTM CC's to provide the opportunity of allowing to expire. Hence, the delta of those short calls is small. Which means that the opportunity to buy them back profitably only occurs after the stock has fallen fairly dramatically, typically far (and definitely more rapidly) outrunning the drop in value of the calls.

2: It's easy enough to place a GTC buyback order on short puts as a piece of protection. If you flat out don't want to be put the stock, you can place a stop-loss order say $2 above where you sold them and your potential loss is capped, period. Note: Not a stop-LIMIT order, a stop-LOSS order. A limit order always has the attribute "limit" affiliated with it. The implication is "or better". Such an order would execute immediately on placement because of the "or better" part. A "stop-loss" order only becomes marketable when the market reaches your stop-loss point. An important distinction. Anyway, your potential loss can be capped whereas with CC's, your loss is unlimited plus you give up the upside. And yes, you could likewise place a stop-loss order to buyback a CC $2 above where you sold it to protect yourself against runaway, or even buy lower strike calls for the same purpose. Still, that money isn't generating MM interest sitting in your acct. (That's "money market", not "market maker"!)

AL:LA

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Author: SemperAugustus Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 638 of 11010
Subject: Re: Naked puts Date: 10/15/1999 5:48 PM
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Ray and others,

I ran an admittedly quick and dirty comparison between naked puts and covered calls for 500 shares of Sears at todays close ($28.63) using the Nov $30 strike price for selling calls or puts. I assumed a 4% return on cash securing the puts.

Puts won out if the share price closed above $30 and the calls get assigned (not by much, 0.3% difference). Calls won out if the share price closed below $30 and the puts were assigned (by substantially less of a margin, 0.1%).

I'll do this on about 20 more positions just to verify. I'll concede that Ray may have a point, but it's not a huge factor.

Nevertheless, every little bit helps.

Semper



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Author: dswartz Two stars, 250 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 644 of 11010
Subject: Re: Naked puts Date: 10/15/1999 8:03 PM
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This is not quite correct, if I understand you, particularly the part about "you get to buy it at a lower price". In the case of a cash-secured short put, you are obligated to buy the stock (if assigned) at the strike, not lower as you seem to suggest.

Sorry, this was just sloppy terminology on my part...


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Author: TechVenture0 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 648 of 11010
Subject: Re: Naked puts Date: 10/15/1999 11:50 PM
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<Semper wrote:

P.S. Like ttm, I can't get approval for "naked puts" either, despite a whack of cash in
my account. So I do the CC version of it.>


I have not talked to my brokers about trading NP yet, anyone knows what are the qualifications for trading NP ? Why it's hard to get approved to trade NP?

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Author: TechVenture0 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 649 of 11010
Subject: Re: Naked puts Date: 10/16/1999 12:38 AM
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< I ran an admittedly quick and dirty comparison between naked puts and covered calls
for 500 shares of Sears at todays close ($28.63) using the Nov $30 strike price for
selling calls or puts. I assumed a 4% return on cash securing the puts.

Puts won out if the share price closed above $30 and the calls get assigned (not by
much, 0.3% difference). Calls won out if the share price closed below $30 and the puts
were assigned (by substantially less of a margin, 0.1%).

I'll do this on about 20 more positions just to verify. I'll concede that Ray may have a
point, but it's not a huge factor. >

CC and NP have the same P/L graph, however writing CC is mainly used to get some extra income and at the same time to reduce volatility, writing NP is used as a way to buy stocks with a lower price.

In CC case we have the stocks so we are participating the stock market, then we will be rewarded as the market is going up. In NP case, we don't have the stock, so we will miss the opportunity when the market is going up.

As for single trading of CC or NP, I think they are the same as the P/L graph shows.

Apparently, CC is much more popular than NP, though I don't know why. For instance, in McMillan's book (as a strategic investment) there are 54 pages for CC vs. 9 pages for NP.

Anyone knows why CC is more popular than NP?

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Author: TechVenture0 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 651 of 11010
Subject: Re: Naked puts Date: 10/16/1999 12:52 AM
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<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>

I think it's crucial to have a good feel of price trends and choose right prices to do CC, otherwise, we will end up with lousy ones and lose good ones.

For instance, for AMAT, I wrote Jan 85 CC a few weeks ago, although the price jumped a few times beyond 85, but it quickly retreated. Also if it's assigned I can always buy it back at a lower price. I think the price is a bit overbought.

Therefore, it's very important to have a good projection on the underlying stocks, though it's not easy job.

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Author: ttm Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 652 of 11010
Subject: Re: Naked puts Date: 10/16/1999 1:15 AM
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< have not talked to my brokers about trading NP yet, anyone knows what are the qualifications for trading NP ? Why it's hard to get approved to trade NP? >

Varies from broker to broker. Frankly, I suspect that most brokerages believe that people don't really understand them. And they're probably right. There is some degree of increased risk of early assignment, definitely more than an early callout on covered calls. Should your covered shares get called away and you leave a few bucks on the table, that's life. You named the price you were willing to sell at and you got that price. Big deal. I suspect in their (the brokerage's) worst nightmare they imagine somebody fresh out of Wade Cook one day waking up finding himself forced to buy a $17 busted stock for $50 and then yanking their account, badmouthing the brokerage, and complaining to the NASD or all of the above. Then, the NASD starts asking funny questions of the brokerage why they let this guy do naked puts when he really didn't know what he was doing. I don't know exactly.

AL:LA

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Author: ttm Big red star, 1000 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 653 of 11010
Subject: Re: Naked puts Date: 10/16/1999 1:28 AM
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<For instance, for AMAT, I wrote Jan 85 CC a few weeks ago, although the price jumped a few times beyond 85, but it quickly retreated. Also if it's assigned I can always buy it back at a lower price. I think the price is a bit overbought.

Therefore, it's very important to have a good projection on the underlying stocks, though it's not easy job.>

Which is exactly Ray's point, and I happen to agree. "I think"...."It's not easy". Think < know. Not easy < easy. "good projection" < reality. What to know about CCs is that the stock can easily blast through your perceived price protection and just as easily blast over your sell strike. And no, you can't "always" buy it back at a lower price.

AL:LA

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Author: GDK72 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 659 of 11010
Subject: Re: Naked puts Date: 10/16/1999 2:29 PM
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Brokerages make selling naked puts very tough because of '87. Things were more free then and banks and brokers took huge hits because of put sellers. Although there is only a small chance there will be a day we drop so quickly people can not get out of their postions they still have to protect themselves from the one in a thousand chance. They also have to use blanket policies that make it hard for the more resposible among us. They do not know which one of is the maniac/ or panicker who will not get out of his position till he takes down the ship. CC are more popular because brokers allow people to do them.
Gary


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Author: OptionsKing Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 664 of 11010
Subject: Re: Naked puts Date: 10/18/1999 12:03 AM
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Man, are there a lot of options newbies floating around here (sorry, ray, but you're included). The reason it's not easy to get your brokers to let you trade NPs is b/c most of you really don't know what the h### you are doing. NPs can be profitable, but only if you have a defined strategy and have prepared for all the "what-ifs."

First of all, NPs and CCs are identical in their profit/loss potential. The BIG difference at most brokers is the margin requirements are LESS for NPs. Yes, ray, you still get to hold that dog if you write an NP on it, just as if you bought it and then wrote a CC. NO DIFFERENCE.

As far as the pricing of calls vs. puts there are 5 or 6 factors invloved. PLEASE, PLEASE, PLEASE read McMillan and re-read it. Ray, stop reading the advanced chapters on butterflys, condors, and reverse ratio call writes and go back to the first couple of chapters where it is explained (very simply) how the values of puts and calls are derived. Then you won't have to just wonder why a Jan01 ATM call is worth more than a Jan01 ATM put. The main reason, BTW, is the risk-free interest rate. The more it is, the more they will differ.

Finally, puts can be backed with many things, not just cash. Equities, bonds, TBills, etc, are all considered collateral, but are each indexed to cash. E.g. stocks = 50% cash, TBills = 80% cash. My broker requires 20% in collateral for NPs.

OK


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Author: co1f Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 667 of 11010
Subject: Re: Naked puts Date: 10/18/1999 12:45 PM
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Hey OK,

[at the risk of degenerating this topic further...]

so if I could actually see the post you were replying to ;-), that "railing" you just gave might be justified (in my book, it's justified when someone purports to know more than they actually do and writes like they're smarter than others... I read ray's msg that started this msg thread and it looked innocent enough).

if it wasn't justified, then why dish it out? Unless you were born an options trader, you probably had to learn and make mistakes too at some point. There always someone else out there who knows more about options than you... and if there weren't, you probably wouldn't be on this board beating everyone up.


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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 669 of 11010
Subject: Re: Naked puts Date: 10/19/1999 3:13 PM
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<<I think it's crucial to have a good feel of price trends and choose right prices to do CC, otherwise, we will end up with lousy ones and lose good ones.

For instance, for AMAT, I wrote Jan 85 CC a few weeks ago, although the price jumped a few times beyond 85, but it quickly retreated. Also if it's assigned I can always buy it back at a lower price. I think the price is a bit overbought.

Therefore, it's very important to have a good projection on the underlying stocks, though it's not easy job.>>


Well, yes. And that's the whole problem, isn't it? *Everybody* in the market is trying to pick the stocks that will go up and avoid the ones that go down. ;-)

But it seems to me, with CC's you are picking an even harder job for yourself. You are trying to pick a stock that will go up, but only a little. That seems to me to be an almost impossible balancing act. You want to get close--right up to a certain point but no further. I think it's probably as hard to achieve in the market as it is in the backseat of her father's car at the drive-in.

And, heck, if you can reliably pick stocks that go up, wouldn't it make more sense to *buy* OTM calls, rather that sell them?

Ray

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Author: Rayvt Big gold star, 5000 posts Top Favorite Fools Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 670 of 11010
Subject: Re: Naked puts Date: 10/19/1999 3:59 PM
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<<Man, are there a lot of options newbies floating around here (sorry, ray, but you're included). >>

Still being the anonymous drive-by poster, eh? And your first-and-only post to the options board.

Heck, I *know* I'm included.
Main difference between me and lots of the other newbies is that I *know* that I have just enough knowledge to be dangerous, and I'm pretty darned sure that that light in the other end of the tunnel *is* an oncoming train----and I have no intention of walking into the tunnel.

Alas, I have long-ago learned (and many times over!) that a stuffed wallet lying on the sidewalk always has a large nasty (unseen) hook firmly attached.

Whenever I feel myself starting to get greedy and cocky, I just sing the old Smothers Brothers song:
"The Slithery-Dee crawled out of the sea.
He may catch all the others but he won't catch me.
No, you won't catch me, you old slithery-dee.
You may catch all the others,
but you won't cat&^%$)*^&^%)_!*&%^&%(slurp)."

Ray

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Author: asmythee Two stars, 250 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 689 of 11010
Subject: Re: Naked puts Date: 10/20/1999 8:26 PM
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Man, are there a lot of options newbies floating around here (sorry, ray, but you're included).

On a Motley Fool Options board of all places. Who would have thought??

I for one welcome the newbies.

If we have to have a jerk here, I was hoping it would be me. Please, let's not have to compete.


asmythee



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Author: foolishangle Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10929 of 11010
Subject: Re: Naked puts Date: 12/27/2012 3:16 PM
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I've been doing my research and am finally ready to start selling NPs but none of the trading houses I use, allow higher than level 2 option trading. Can anyone make recommendations of good trading houses that allow Naked Put and Spreads, are reputable, and that don't charge huge fees?

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Author: Zumba Big red star, 1000 posts Old School Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10930 of 11010
Subject: Re: Naked puts Date: 12/29/2012 9:45 AM
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go to TDAMeritrade.com and download the THinkorswim platform for your computer. You can try it out for free and getting approved for NPs is easy. TOS is easily the best platform out there for trading options.

Paul

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Author: jchoy Two stars, 250 posts Ticker Guide Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10931 of 11010
Subject: Re: Naked puts Date: 1/5/2013 1:54 PM
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Agreed. ToS is by far the best options platform I've used. Not the cheapest though, but options approval is easy.

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Author: aleax Big gold star, 5000 posts Top Favorite Fools Global Fool Pro Community Winner Motley Fool One Everlasting Fool Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10933 of 11010
Subject: Re: Naked puts Date: 1/21/2013 5:33 PM
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I've been doing my research and am finally ready to start selling NPs but none of the trading houses I use, allow higher than level 2 option trading. Can anyone make recommendations of good trading houses that allow Naked Put and Spreads, are reputable, and that don't charge huge fees?

Me, I'm with OptionsHouse -- http://oh.tellapal.com/a/clk/4R2J5D if you want to explore it and potentially give me some free trades if you end up signing with them -- reputable, cheap, decent execution and platform, and relaxed about allowing you all sort of things as long as your account is large enough and you're willing to claim expertise and happiness to speculate on your option-permission request form.

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Author: altstrat91 One star, 50 posts Add to my Favorite Fools Ignore this person (you won't see their posts anymore) Number: 10934 of 11010
Subject: Re: Naked puts Date: 1/24/2013 5:33 PM
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did not see anyone clarify this. a "naked" put has nothing to do with your intention of having cash set aside to take assignment or your available margin BP for a what if worse case scenario.

a naked put is simply a maneuver in which you are totally unhedged. all you do is one trade; STO and that is it. there is no protection against downside, hence the word naked. if you in fact you do sell it with a cash secured money market brokerage account, you still have no downside protection so your position is still naked.

the problem with naked puts is the premium has the potential to lure you in. sure you can start out with your cash secured hypothesis. but after a few months of pocketing that premium, it will seem pretty easy, especially with the kind of trend the market has had the last 4 years or so. next thing you know you are looking at higher beta equities with larger premiums.

but as OP started the thread, if utilized in the appropriate fashion, is nothing worse than a buy limit order at the price you want.

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