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Strategies & Market Trends : Ask DrBob
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To: Didi who wrote (9)8/17/2000 12:49:29 PM
From: PAL  Read Replies (1) of 100058
 
di di:

many individual investors buy near options which are way otm hoping to hit a home run. most of the time these options expire worthless. (note: there are exceptions of course since i know a person who bought call options for 2.5K and turned it into 1MM in about a month).

option writers take advantage of the above. they collect those premiums over and over again. the amount is not a home run, but a hit single but do it month after month. this is waht is called crumbs, but that could turn into about 50% p.a. on the investment. not a get rich quick scheme.

august is the front month for ony a couple more days, and september will be the one next week. i have not made a study as whether the premium drops significantly when next month becomes the front month. psychologically that might be a factor. some might think that currently oct expiration is two months away while next week oct is just one month away.

common sense tell us that today is a good time to sell otm puts on stocks that have not participated in this week's chip's rally.

my choice of collecting crumbs is : qcom oct/55 puts for $ 4 1/4. i have been selling them the past 2 days. note that qcom has not participated in this week's nasdaq advance, yet this is a good company. breakeven of this put is 50 3/4. if qcom drops to that level, there must be something drastically wrong, and option writer should close the position before that happens, if ever. do not be afraid to take a loss.

now if you or drbob will provide technical analysis of qcom, we have it all.

good luck

paul
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