We will suppose that you buy U.S. Steel at 60 and want to be protected and limit your
loss. Then you buy a Put, good 30 days, at 57, which is 3 points under your purchase price; and at the same time you sell a call at 65. This leaves only a small expense or the difference between the Price you pay for the Call and the price at which you buy the Put. Should the unexpected happen and some unfavorable news cause LJ.S Steel to decline and close at 50 at the end of 30 days, you will be out at 57 because you can deliver on your Put at 57. This is what we call selling a 1 out or a Call on one side of the market to make the money to pay for protection on the other side.
Arranging to sell puts and calls
You can arrange to sell Puts and Calls by getting in touch with your broker. Any brokerage firm that is a member of the New York Stock Exchange can endorse Puts and Calls. Many firms, however, do not handle this business, but your broker can recommend a firm that will be glad to endorse the Puts and Calls you wish to write. If your broker cannot help you out in this matter, you can get in touch with any member of the Put and Call Dealers Association.
In order to sell a Put or a Call, it is generally necessary that you deposit at least 30% of
the value of the stock, or in case of a Call, you can deposit the stock itself, so that the
broker will always be protected in case the stock is called for or is put to you, Puts and Galls are sold not only for 30 days but also for 60 days, 90 days and in some cases for longer periods of time, particularly in dull and inactive markets Also, instead of selling at a regular rate, such as, $125.00 or $112.50, often they are sold for $250, $300, $400, or $500 AT THE MARKET; in other words, instead of getting points up or down, you receive an additional sum of cash –which is equivalent to the points.
Your broker or a member of the Put and Call Dealers Association can furnish you with
prices and quotations and the details for handling such transactions.
If you will read “How to Make Profits Trading in Puts and Calls” and supplement the
information given, by the use of charts on a few active stocks, you should be able to protect yourself and also operate a profit in both buying and selling Puts and Calls.
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