OptionSmart.com…OptionsMart.com…
                       
                      08/26/04
"Sell Naked Put" Option Strategy
                       
This module is empty because the picks found had very low probability to be profitable.
                       
      Stock Stock Trends Sector Trends      
      Symbol Daily Weekly Daily Weekly      
      MCD Up Neutral Up Down      
      HHH Up Down Up Down      
      SMH Up Down Up Down      
      INTC Up Down Up Down      
      MCD Down Up 0 0      
      #ÑÑÛËÊÀ! Neutral Up ####### #######      
      HHH Up Up 0 0      
      SMH Up Up 0 0      
                       
  Last Expira- Put Put Break-even Max Profit  Time Value     Stock Put
Stock Stock tion Option Option     Price Option
Symbol Price Month Strike Price 1) 2) Target Symbol
MCD 26.95 Jan-05 22.50 0.65 26.3 0.65 0.65 64% 0.1% 29.05 MCDMX
HHH 55.9 Jan-05 50.00 3.00 52.9 3.00 3.00 62% 0.2% 61.35 HHHMJ
  SMH 30.3 Jan-05 27.50 1.50 28.8 1.50 1.50 60% 0.1% 33.50 SMHMY  
INTC 22.77 Jan-05 22.50 2.00 20.77 2.00 2.00 62% 0.3% 0.00 NQMX
MCD 0.00 Dec-04 20.00 0.75 -0.75 0.75 0.00 0% #### 0.00 MCDXE
#ÑÑÛËÊÀ! #### #### #### #### #### #### #### #### #### ###### #ÑÑÛËÊÀ!
HHH 0.00 Nov-04 50.00 1.60 -1.6 1.60 0.00 0% #### 0.00 HHHWJ
SMH 0 0 0 0 0 0.00 0 0.72 0.59 0 0
 1) "No Loss" Probability. 2) Expected 1-Day Return.          
                       
                       
About "Covered Calls" and "Naked Puts"
                       
 
"Sell "Naked Put" Option Strategy
 PROFIT: limited to the premium received from sale. At expiration, break-even point is strike less premium received. Maximum profit realized if stock      settles at or above strike.
 LOSS: increases as stock falls. At expiration, losses increase by one point for each point stock is below break-even. Because the risk is open-ended,  this position must be watched closely.
 RISK: Unlimited. REWARD: Limited. MARGIN: Always required.
 TIME DECAY: this position is a growing asset. As time passes, value of position increases as option loses its time value. Maximum rate of increasing  profits occurs if the option is at-the-money.
 EXAMPLE:"Sell 2 ABC May 50 Put @ $4.50". The seller would assume the obligation of purchasing 200 shares of ABC stock @ $50 per share. In  return, the premium of $4.50 per share, or $900, is received.
 OUR FINDINGS:
 1. Selling puts on stocks that have been hammered and have little chances of dropping further would provide a safe play.  According our back tests, 90% of stocks with strong bullish signals didn't fall below break-even points for front-month at- the-money put options. Put options for stocks with strong bullish signals are often overvalued. 
 2. Naked puts provide higher returns than covered calls. 
 3. "Rolling down" of naked puts provides an additional downside protection and saves up to 70% of potential  losses.
                                            
Naked Puts Vs. Covered Calls
From the profit graphs we can see that naked puts are virtually equivalent to covered calls. Naked puts might be the top choice of a practical investor because they require smaller investments, thus providing higher returns. Covered calls appear to be based on personal psychological preferences.
 
                       
                       
Short Glossary                  
                       
Expected Profit is computed using the probability of profit and option prices over the projected probabilities. It is equal to the probability of profit multiplied by the price and sum over all possibilities. 
EXAMPLE                      
Outcome 1. Probability = 0.1, Profit= $6               
Outcome 2. Probability = 0.3, Profit= $4               
Outcome 3. Probability = 0.2, Profit= $1               
Outcome 4. Probability = 0.2, Profit= -$1               
Outcome 5. Probability = 0.1, Profit= -$2               
Outcome 6. Probability = 0.1, Profit= -$3               
Expected profit equals $1.30.        
As a rule, when searching for picks, "No loss" probability and expected profit should benefit the trade.  Generally speaking, traders struggle for "No Loss" probability substantially higher than 50%. In the same way, most traders make every effort to find picks that have positive expected profits. 
                       
Expiration Date. The day when an option contract becomes void (the Saturday after the third Friday of the expiration month). 
                       
"In-the-money" Probability. Probability of the fact that the option will have any value on the expiration date, i.e. the actual stock price goes above the option strike. 
                       
"No losses"  Probability. Once you set a certain minimum level for this parameter, you can reject the picks that go beyond your desired risk level. 
                       
Put Option - the right, but not the obligation, to sell stock at a predetermined price (also known as a strike) at any moment before the expiration date. 
                       
Stock Technical Signals are based on various technical indicators for daily and weekly charts. Usually, swing traders check weekly charts to avoid fighting longer-term trends, while investors check daily charts for better timing of entry/exit points. 
                       
Time Value. Amount by which the current market price of an option exceeds its intrinsic value (the difference between the stock price and the strike). This additional value of an option is due to the volatility of the market and the time remaining until expiration. 
                       
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