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Trade the Bollonger Band Squeeze

Covered calls with CFDs?

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% Price Moveausdoc02-Jul-06  05:02 pm
         

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enfant_terrible
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I'm new to this whole game and am currently fleshing out a few systems. Does anyone know if/where you can use CFDs for a buy-write strategy?


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davkell
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Buy-write strategy is for options only. CFD's are contracts for difference whereby you enter into a contract for a parcel of shares with a provider. I'm not fully learned on options strategies but don't think you could replicate the strategy (whatever it is??) with CFD's.

I could be wrong. Anyone else shed some light?







"Trade Your Way To Financial Freedom" - Van K Tharp

"Manage the downside; the upside will take care of itself" - Donald Trump

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chart_rider
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enfant

I would say not. In a buy-write, you need to physically own the shares as a cover for the write - in which case the shares can be sold to somebody who decides to exercise the call option.

With the case of CFD's, shares are not actually owned and as there is nothing to act as a cover.

CR


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enfant_terrible
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Friday, June 30, 2006 - 09:48 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Thanks davkell. Buy-write means (to me at least) merely to write covered calls/puts against a stock you bought/shorted. I've had a better look around since posting and it appears that IG markets allows an off exchange equivalent to options in the same way they offer CFDs as an off exchange equivalent to shares on margin. It doesn't seem to be available on their Australian sight though. Well anyway, I'll follow it up with them and update y'all when I know better. Thanks again for your reply.


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hilarius
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Chart Rider

I beg partially to disagree ...

Writers of calls generally hold the stock in which they are writing their covered calls ... by definition, though theoretically one could just hold earlier dated calls and no physical stock until the earlier exercise date?

If an additional quantity of calls is written which still brings the total against which calls have been written to less than the actual holding of physical stock the risk of a rise in price during the call period can be insured against either by :-

(1) Buying more physical stock, OR
(2) Buying CFDs, OR
(3) Sitting tight with more physical stock at risk

Agreed?

With Best Wishes

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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hilarius
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Chart Rider

In a way you are right in the answer you first gave

Someone new to the field may well not be sitting on a pile of physical stock, unless they've inherited it from a kindly aunt

With Best Wishes

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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chart_rider
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Hilarius

In the case of covered calls, the writer owns the stock and is thus able to cover the possibility of an exercise by a buyer of the call options.

The other method is naked calls, where-by security is provided by other means.

The act of writing call options allows one to gain additional income from stock already held as an investment, and for most retail investors covered calls is easier and safer than naked calls.

Cheers
CR


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hilarius
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Chart Rider

Yes I was entirely aware of the information in your last message

I was putting to you the situation where a person owns more stock than that for which he has written call options

In such a case the person could use CFDs to insure some of the risk from writing additional call options as long as the total of call options written did not exceed the physical stock held for possible delivery

This would be an alternative to buying more physical stock to ensure the same open position not at risk from calls?

Agreed?

Hilarius


I come in peace to share my thoughts and to shine my candle light on possible long term opportunities

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enfant_terrible
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Hi folks,
Thanks for all the input Chart Rider and Hilarius. I should start by apologising for not posting this thread on the derivatives page. In hindsight it would have been more appropriate as it seems that is what the query boils down to. But at least we are all learning here.

After brief conversations with IG Markets it would appear the short answer to my question is yes. You can write options against CFDs although their answer was neither brief nor clear, so there may be conditions relating to the account type you need in order to do that.

I created this confusion so I'll attempt to explain a few points (please forgive me my presumptuousness):
*Covered calls to me consist of two types, real and synthetic. By real I mean covered by the underlying security and by synthetic I mean covered by some other instrument, be it options as in Hilarius' example, or CFDs.
*It is my understanding that the requirement to be "covered" comes from the brokers aversion to risk rather than any market rules or regulations. As such you don't need to own any of the underlying stock. The brokers simply require you to hedge against the "unlimited" risk inherent in writing options. As above this should be able to be done with any appropriate instrument.
*I take naked writing to represent a position taken without a hedge of any kind and only cash to support your position.

"The act of writing call options allows one to gain additional income from stock already held as an investment"

That is the general idea I was building on. The CFD angle is perhaps me just being greedy. I'll let you know if anything eventuates with it. Thanks for your patience and sincere desire for knowledge. This forum is truly enlightening.


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phillnorm
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Saturday, July 17, 2010 - 10:34 am:Copy highlighted text to 'New Message' boxEdit Post Delete Post Print Post    View Post/Check IP (Moderator/Admin only) Ban Poster IP (Moderator/Admin only) Move Post (Moderator/Admin Only)



Daniel Kertcher of Platinum Pursuits has started doing a course on writing covered calls against your cfd position rather than shares

philnorm


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espresso
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Daniel Kertcher has been blowing his own trumpet for a long time, he is only interested in your money, - the cost of doing his course. There are as many inelegant people on the IC forum that have better advice and more knowledge.







Those are my principles, and if you don't like them... well, I have others.
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2292
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I do agree that Daniel Kertcher's course is somewhat expensive and that there are many people out there who may be interested in this strategy and who already have sufficient knowledge to undertake it without having their hands held along the way.

Therefore I ask the "many intelligent people" (that's you) of this community is anyone doing this already? Is so where/how?

If not, does anyone know of a means of doing this or a broker who can offer this without having to go through Daniels' course and Platinum Pursuits?

Cheers!

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