A Study of Covered Strangle in a Rather Neutral Market Message Board

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Strategies & Market Trends : A Study of Covered Strangle in a Rather Neutral Market

QCOM 168.52

-1.0%

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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