Subject: Re: A warning for mechanical investors.
HI lux..... I read your other post - Outstanding and cogent thought process :)

Btw ( :) ) - APOLOGIES ---- I generally use Caps to highlight text - because a lot of folks just go cursory glance. You seem to be in the minority.

I think I misunderstood your Counter party here - I primarily described Funds/IIs who actually own the stock to begin with and deploy Covered Call Writing as a potential Cash generation/Hedging strategy. This was always believed to be a common participant in the Options MM market.

What you describe is a very different animal.

(1) Because in Step 1 - it seems its a Naked Call Writing .... backed by Cash I am guessing. Nonetheless, the initial position has a ton open risk. Because buying the underlying stock simultaneously would likely invalidate the bid/ask spread - with no arbitrage theory of pricing - correct?
(2) The rest of the steps you outlined would follow - in this scenario.

So the key question in my mind - is how big is this market ie is this a dominant strategy these days?