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Dear Bill,
I do not believe there is a right and wrong position here. We
essentially are in agreement.
What you described is one of the ways how I decide on the put...I
just do not like going out that far. I think that it would be a safe
bet to sell the put you describe at that price if you truly liked the
company for fundamentals.
The chances of it being put to you at below 17.5 are slim in my
opinion on a 3 month horizon...but 6 months makes me schizzy.
John
------------------ Reply Separator --------------------
Originally From: calaxcorp@xxxxxxx
Subject: Re: [RT] Selling Uncovered Puts
Date: 10/21/2002 11:47pm
John:
Gary is absolutely right.
I know John was not talking about doing covered calls on TTWO, but
here is a
thought. Without giving up on the idea of playing the options on
that stock
completely, here is a slight improvement on the 7% return scenario,
using the
Naked Put theme John initially asked about --
So instead of buying the stock and selling a covered call, sell a
naked Mar
17.50 put, currently at $1.35 bid. Your broker will mostly likely
ask for a
margin of $17.50 just in case you are put the stock. So the return
is
slightly better than the 7% from doing covered calls. ($1.35 divided
by
$17.50 =) 7.71%, or better if less margin than the $17.50 is
required, or if
there is other equity in the account to be used for margin...
And if you are not put the stock, only one commission is paid.
7.71% (or more) return on investment, for 5 months, = 18.50% (or
more)
annualized. Beats many mutual funds these days. Now don't everybody
rush
out and do this-- the open interest on this is still low. (:o)
Just a thought.
Bill W
In a message dated 10/21/2002 7:10:53 PM Pacific Daylight Time,
gary@xxxxxxxxxxxx writes:
> Thanks John. Interesting site,
> <A
HREF="http://www.optionsnewsletter.com/";>http://www.optionsnewsletter.
com</A>
> but just looking at one random recommendation:
>
> Covered Call: 1
> Name of the Company: Take-two Interactive S
>
> Stock Symbol is <A HREF="http://www.optionsnewsletter.com/page.cfm?
id=145&page=customizer&ticker=TTWO">TTWO</A>
>
> Last Price of stock: $27.63
>
> Call being sold is: March 17.5
>
> Symbol for the call is: UOCW
>
> Bid Price of the call: $11.30
>
>
> IN PLAIN ENGLISH If you buy 100 shares of Take-two Interactive S
at the
> price of
> Then sell 1 contract of the March 17.5 call for
> Your "New" cost on Take-two Interactive S would be
> $27.63
> - $11.30
> $16.33
>
> ( $2,763.00 )
> ( $1,130.00 )
> ( $1,633.00 )
> On the third Friday in March if the stock is above 17.5 , Then it
will get
> taken ("Called") away from you at $17.50. In turn you would make 7%
on your
> investment.
>
> Above, that $17.50 option is a full $10 in the money. Consulting
the
> options quote:
> <A HREF="http://quote.cboe.com/QuoteTable.asp?
TICKER=ttwo&ALL=2">http://quote.cboe.com/QuoteTable.asp?
TICKER=ttwo&ALL=2</A>
>
> There's zero open interest in that particular option, and even
though the
> bid shown is $11.30, I wonder how realistic that quote will be if
you
> actually try and execute the trade?
>
> When I look at this trade, can't help wondering if there isn't a
better way
> to earn 7% on my money? I also think that any service that makes
> recommendations should filter out very thinly traded options, say,
> restricting their choices to strikes that trade an average of 100
> contracts/day.
>
>
>
>
>
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