Skip to main content
Message Font: Serif | Sans-Serif
No. of Recommendations: 1
I'm no options expert, but since no-one else has replied to you, I'll give it a shot...

"What happens when you write a covered call of a stock that is going down all the time. What is the risk?"
You lose money on the underlying stock, which you are holding. The risk is the call premium you are collecting won't be enough to cover the loss on the stock.

"What happens with a written put in a bull market? the stock is in an upward tendency. Am I winning the premium only for watching the stock to go up?"
Basically, yes. A written put captures a set amount of gain. The underlying stock may move up faster.

"What happens to my funds, am I able to use the entire quantity of my funds?"
On a written put, you get and can use the premium right away (minus trading fees). The amount of cash to settle the put is reserved. In your example, for every put you sold, you would get $100 in cash right away (minus trading fees) but have to reserve $400, so a net $300 is reserved until expiration. So what does reserved mean? In an IRA, for example, you will just get the 0.01% interest that cash earns. In a cash margin account, you can still use it as part of your margin, but you gotta know your broker's margin rules.
Print the post  


When Life Gives You Lemons
We all have had hardships and made poor decisions. The important thing is how we respond and grow. Read the story of a Fool who started from nothing, and looks to gain everything.
Contact Us
Contact Customer Service and other Fool departments here.
What was Your Dumbest Investment?
Share it with us -- and learn from others' stories of flubs.
Work for Fools?
Winner of the Washingtonian great places to work, and Glassdoor #1 Company to Work For 2015! Have access to all of TMF's online and email products for FREE, and be paid for your contributions to TMF! Click the link and start your Fool career.