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Strategies & Market Trends : Options

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To: RocketMan who wrote (7066)	4/29/2000 2:15:00 PM
From: Seldom_Blue	Read Replies (1) of 8096

Hi RM, For that reason I also avoid deep ITM, since I believe it is equivalent to margin buying. Huh? Depends on how you look at it. If you buy the same number of DIM options as you have 00s of shares, you are nowhere near the equivalent of margin buying. You are doing what UF calls a stock replacement. You are freeing up about half the cash for the same ups and downs as your common, in DOLLAR sense. It even has one thing better than holding the commons: it puts a floor on your loss should the stock drops severely. The movement in percentage wise if will be more. If you spend the same amount of dollars for DIM to get more contracts, then it does take on some of the characteristics of margin buying. But it does avoid the most troubling part of margin buying: it does not create margin call situation. And the option drops a little slower than common once the price falls to near the strike. To each his own. Whatever people decide to do, they have to run scenario when the stock goes up 100%, or drops 50%. Make sure they can live with either situations. Seldom Blue

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