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Technology Stocks : Ampex Corp: Digital Storage
AMPX 7.887+0.7%3:59 PM EST
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To: Ed who wrote (2488)4/6/1997 8:04:00 PM
From: HPilot   of 3256
 
The reason to wait until it is closer to the 7 1/2 is that the 7 1/2 will be worth much more and the 10's will not go up much until the stock goes over 7 1/2. But if you wait until the stock goes to 9 then although the 7 1/2's may go up about 100% the 10's may go up 200%. I really don't know just how much the options will actually go up but the following would be somewhere in the ball park. Say the stock is at 7 1/4 and May 7 1/2's are selling for about 1 1/4. You can buy May 10's for 1/4 or 5 10's for every 7 1/2 you sell.

The stock goes to 8 1/2 and you think the stock will go down so you sell your 5 10's at the then going price of 1/2 or $250 for every 5 call the 5 call is now worth 2 so you buy them back with $50 profit. Good news drives the stock to 9 1/4 and you here rumors of even better news ahead. So you decide to jump back in, but now the 7 1/2 are worth 2 1/2 and the 10's are at 1 1/4 so you can only buy 2 10's for each 7 1/2 sold. It's the ratio's you are playing the bullish and bearish backspread's are in a class of spreads called ratio spreads and are some of the most intriging option staatigy's. Would be worth reading on because they really reduce the risk of options and even improve on the returns.
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