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Technology Stocks : Broadcom (BRCM)
BRCM 54.670.0%Feb 9 4:00 PM EST
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To: Keith A Walker who wrote (3219)12/6/1999 9:26:00 AM
From: edamo   of 6531
 
keith...re: selling puts

selling puts is an effective enhancement to a long term buy and hold style of investing which can add incremental income of 2-8% per month by using your portfolio capacity. two rules never to violate:

1: always have cash or capacity to accept the assignment
2: only sell puts in that which you own or desire to own

intimacy with the underlying, a keen knowledge of determining under/over sold bias is essential.

case in point, i do not own brcm, but desire to. the stock at the time (12/2) had a neutral to overbought bias, but appeared to be able to move upward. stock trading in the 190's. i can buy (cash out) at this point or sell, as i did 20 x rdw-md jan 220, received a 35.625 premium(71250 total) risk if assigned? i own at 184.625, better then the market on that day. if above strike at expiration i achieve a 16% return against 440k exposure.

it is a much maligned basic strategy that aids in building a portfolio at levels that you desire. some will counter with the "loss of opportunity" argument that the long does not have. but even on a screaming stock you can follow it upward with puts, until it catches you. and in essence you have participated in the move with the premiums in hand.

good luck....ed a.
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