Comments on: Put Selling and Covered Call Writing https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/ Learn how to invest by selling stock options. Tue, 11 Sep 2012 22:00:03 +0000 hourly 1 By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6793 Tue, 11 Sep 2012 22:00:03 +0000 /?p=6841#comment-6793 In reply to Alan Ellman.

One more related item as to why selling cash-secured puts requires a higher trading level than selling covered calls: I spoke with a former options market-maker and It appears that the consensus on the higher required level of expertise is generally because put positions (and even short positions) are considered conceptually tougher to understand.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6773 Mon, 10 Sep 2012 15:13:07 +0000 /?p=6841#comment-6773 In reply to Amy.

Steve,

I’m as mystified as you are on this one. I haven’t surveyed the different brokerages to see what percentage view covered puts less risky than cash-secured puts but I must intuitively disagree with those who do. Although covered puts to generate extra premium on short positions, it is a risky trade in my view because there is no limit to how much you can lose if the price of the stock rises above the breakeven (put premium + price of underlying @ initiation).

A call to a brokerage may or may not get you a satisfactory response.

Alan

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By: Steve Z https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6755 Sat, 08 Sep 2012 17:35:12 +0000 /?p=6841#comment-6755 In reply to Alan Ellman.

Why do some brokers consider a cover put less risky than a cash-secured put? The investor is borrowing money and paying interest on the loan by selling a stock short and this is considered less risky and/or easier for a novice to do than just having enough cash in the account to buy a stock on a specific date and at a preset price. The logic of this is not obvious to me.

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By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6735 Thu, 06 Sep 2012 20:57:58 +0000 /?p=6841#comment-6735 In reply to Adrian.

Adrian,

Let me premise my responses by saying that since the IBD 100 became the IBD 50, it is important to screen additional stocks in order to develop a quality watch list of 40-60 equities. The BCI team screens over 3000 stocks each week. It certainly is NOT necessary to screen that many if you are doing the legwork yourself but the IBD 50, although critical, is not enough. My responses:

1- If you follow the BCI methodology, approximately half of the IBD 50 stocks will be eliminated by the time you get to the technical screens. Last week, 18 of the IBD 50 stocks survived our strict screens and “earned” their way onto our running list. 24 stocks were eliminated prior to technical analysis and 8 more after technical analysis.

2- If you are extremely bullish and opt for only OTM strikes, there is no need to calculate ITM strikes. Each of us have our own risk-tolerance. I am a conservative investor and rarely in 100% OTM strikes. It’s important to know our own comfort level and how we would react if some of your positions turned against us.

3- Rolling out and up is a more bullish position than simply rolling out. It allows us to take advantage of share appreciation either past or present. When you roll out it is always to an ITM strike. Rolling out and up can be to an ITM, ATM or OTM strike. This is an important concept to master. See pages 280-292 of “Encyclopedia…” for detailed information.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6725 Wed, 05 Sep 2012 23:28:23 +0000 /?p=6841#comment-6725 In reply to Jorge.

Jorge,

Yes, precisely the same…100 contracts of open interest and/or a bid-ask spread of $0.30 or less.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6724 Wed, 05 Sep 2012 23:26:58 +0000 /?p=6841#comment-6724 In reply to Amy.

Amy,

With a cash-secured put, the cash is in our account to purchase the underlying stock if “put” to us. A covered put option is an option sold short after having sold the stock short (borrowing it from the broker). If the short put is exercised and the seller is required to buy the stock, that stock will be used to “cover” the short position in the stock. This is Not something part of the BCI methodology.

Alan

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By: Alan Ellman https://www.thebluecollarinvestor.com/put-selling-and-covered-call-writing/#comment-6721 Wed, 05 Sep 2012 12:27:19 +0000 /?p=6841#comment-6721 Running list stocks in the news: HAIN:

On August 22nd, HAIN (provider of natural food and personal care products) reported a positive earnings surprise for the 7th consecutive quarter, averaging a 6% surprise. Revenues increased by 22% year-to-year. Long term EPS growth stands @ 15% above its industry peers. Our premium running list shows an industry rank of “A” and a beta of 0.78.

Alan

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