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Strategies & Market Trends : VOLTAIRE'S PORCH-MODERATED
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To: jmac who wrote (27066)12/22/2000 7:42:45 PM
From: Joshua Corbin  Read Replies (1) of 65232
 
You have enough money to buy 1000 shares of jdsu at 100 ($100,000). You could have spent $10,000 on JDSU calls and if you would have left the rest of the money in cash, you'd be out $10,000 rather than 60% or $60,000 had you held the jdsu stock.

Let's look at this again. The number of shares isn't important. Look at the amount of money at stake:

If you bought unmargined JDSU at 100, you'd have a current paper loss of 59%. Throw in the possibility that the stock will eventually recoup its losses.

If you bought JDSU calls, you'd have a 100% realized loss. It's all gone regardless of the company's long-term prospects.

Even if you bailed at 40 15/16, a 59% loss beats total wipeout.
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