Paul Price

Schlumberger: A Big Slob You Can Love

Jeez,

You don't lose the 'equity value' of paid-up shares in your account when you write covered calls. In fact, once you've sold calls you get credit for the cash premiums received as if you had depsoitied that amount of money into your account. Selling calls increases - not decreases -your buying power.

Selling puts does tie up buying power equal to approximately 30% of the net exercise value on the trade date [e.g. sell $50 puts for $19.50/share = initial requirement of 30% of $30.50 = $9.15/share free equity].

This can be met with cash, t-bills held in the account or any other marginable securities that are already paid for. If you have a margin type account with decent size equity, the strategy described in my write - up works great with the need for any 'cash' tie-up.