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Strategies & Market Trends : A Study of Covered Strangle in a Rather Neutral Market
QCOM 165.27+1.5%9:30 AM EDT

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To: PAL who wrote (5)8/19/2001 12:24:31 PM
From: PAL  Read Replies (1) of 23
 
Let us compare covered strangle against other strategy.

What if we use edamo's method: 100% cash and use that as collateral for shorting put. We will use the same trade date and premium received.

We started out in July with $ 110,000 cash and no security.

On 7/24/01 sell 20 puts QCOM Aug60 at 5.70, collects $ 11,400. Now we have cash $ 121,400 and 20 open short puts.

On 8/18/01 the option expires, so we have $ 121,400 in the clear. This is based on 100% cash and use it as short put.

Comparison:

Covered strangle : portfolio $ 119,210
100% cash/put : cash $ 121,400
Difference : $ 2,190 or 2% better.

Therefore, in the situation which has passed, the 100% cash was better than covered strangle.

Remember that QCOM closed at 61.56 on 8/17/01. What if the stock closed at a different price. Is covered strangle is inferior to 100% cash/short puts, and if not, what is the breakeven point?
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