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I am *not* saying that. I am saying your strategy has the *same* risk as
selling naked puts. Just look at the payoff graphs.
> -----Ursprüngliche Nachricht-----
> Von: cwest@xxxxxxxxxxxx [mailto:cwest@xxxxxxxxxxxx]
> Gesendet: Tuesday, January 15, 2002 21:57
> An: MikeSuesserott; Omegalist
> Betreff: RE: please critique this strategy
> I guess I should have prefaced the strategy by saying that naked options
> aren't really a choice in terms of trading safely and real-world margins.
> Although a smaller amount is theoretically used to sell naked
> puts, a broker
> would want "something" additional behind the trade. Just selling
> puts would be simpler, but as you say much more risk is entertained.
> -----Original Message-----
> From: MikeSuesserott [mailto:MikeSuesserott@xxxxxxxxxxx]
> Sent: Tuesday, January 15, 2002 12:43 PM
> To: cwest@xxxxxxxxxxxx; Omegalist
> Subject: please critique this strategy
> Hi Colin,
> please be advised that the profit graph of this position (long 1000 QQQ,
> short 10 QQQ Jun02 36 Calls) is *exactly* equivalent to short 10 naked QQQ
> Jun02 36 Puts; you can use any option analysis software to verify this.
> The differences:
> your combined position has a large amount of capital - some $50,000 - tied
> up (stock price plus margin); furthermore, the ITM calls may be subject to
> early assignment.
> The equivalent naked puts would have only about $ 4,000 tied up at current
> prices; no immediate assignment risk exists because the puts are OTM.
> To sum up, the option strategy you asked to be discussed is a
> more expensive
> way of selling naked options. It is true that the sale of naked
> options can
> be very lucrative, but the (nearly) unlimited downside risk is to be
> considered also. I for one wouldn't want to take it.
> Best regards,
> Michael Suesserott
> > -----Ursprüngliche Nachricht-----
> > Von: cwest@xxxxxxxxxxxx [mailto:cwest@xxxxxxxxxxxx]
> > Gesendet: Tuesday, January 15, 2002 19:51
> > An: Omegalist
> > Betreff: please critique this strategy
> > Not too long ago a probable and/or realistic annual return that could be
> > expected was discussed on the list and I believe the consensus
> > was that not
> > more than 40% p.a. could realistically be expected, barring
> excessive risk
> > and an extraordinary "banner" year. I'm raising a strategy for
> > that has the potential to exceed 40% p.a. that also encompasses several
> > "trading safely" features, if you will, and can usually support
> > quite large
> > fills with little slippage.
> > The goal of the strategy is to sell rich covered call premiums that are
> > deep-in-the money. In the example I've used QQQ and QQQFJ (Jun'02
> > 36 call).
> > Not that the latter is the richest, it's just an example. The strategy
> > includes borrowing against the QQQ units or shares either
> through a margin
> > account or privately.
> > The calculations of this strategy can be viewed at the following link. I
> > didn't include them in the email because the listserver at
> > eskimo.com seems
> > to "object" to formatting, html and most attachments.
> > www.traders2traders.com/myfiles/cwest/QQQexample.htm
> > <http://www.traders2traders.com/myfiles/cwest/QQQexample.htm> .
> > (Although NS
> > will probably screw the formatting anyway :-)). BTW, if anyone
> needs some
> > space for a time at ../myfiles/yourname/, they're welcome.
> There are a few
> > users already.
> > I look forward to any comments that may expose any not so obvious
> > floors in
> > the strategy or suggestions to improve its return.
> > Colin West