NetNews Usenet Archive 1993 #3/NN_1993_3.iso/spool/misc/invest/16803

Text File | 1993-01-21 | 1.7 KB | 44 lines

Newsgroups: misc.invest
Path: sparky!uunet!mailgate.mobil.com!etpeters
From: [e-mail] (E. T. Peterson(Eric))
Subject: Re: Covered Calls:  Less Risk - High Returns.
Message-ID: <[e-mail]>
Sender: [e-mail]
Organization: Mobil Exploration & Producing Technical Center(MEPTEC), Dallas.
References: <[e-mail]> <[e-mail]> <[e-mail]>
Distribution: usa
Date: Thu, 21 Jan 1993 21:39:32 GMT
Lines: 31

In article <[e-mail]>, [e-mail] (Ted Jordan) writes:

|> >|> A friend told me about the covered calls.  This looks like very low
|> >|> risk but good return to me.

|> Is there the same kind of thing for PUTS?  (Is there such a thing; rather
|> is it called a "covered put", and do you have an example of this scenario?

Yes.

When you sell a stock short, you could also sell a put on that stock.
This is analogous to covered call writing on a long position.

For example, you short a stock at $40 and sell a 35 put at $2.

At the expiration date of the put, if the stock is below $35, you will
have to buy it for $35, thus covering your short position.

If the stock is above $35, the put expires worthless.

In either case you keep the $2 put premium.

The drawback is if the stock goes way down, say to $20, you still have to
buy it at $35.

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