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Technology Stocks : Intel Corporation (INTC)

INTC 34.50

+2.6%

Nov 21 9:30 AM EST

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To: GVTucker who wrote (133391)	4/26/2001 10:05:50 AM
From: rudedog	Read Replies (1) of 186894

GV - I have three close friends who were nearly wiped out last year - in three different scenarios, all driven by someone else's notion of how to be "smart". These were all technical folks with little appreciation for the financial side of things. The first was a couple who had a pretty substantial option position in a well-known bay area high tech company... they had wanted to buy a house for a while and considered selling about half of their option position to finance a purchase (they had options worth about $1M and needed about $400k). They were convinced to take out a balloon loan against their option position to finance the house. After all, the stock was going up a lot faster than the loan interest, why not have their cake and eat it too? Sell the options later and pocket the difference!! Unfortunately, when the market tanked they had to sell all of their options, and the house they had just bought, to pay off the loan. Now they are back to living in a rental unit with nothing in the bank. The second guy was talked into selling his convertible options and buying the stock using a bridge loan and then margin on the stock. The argument was that he could then hold the stock for long term cap gains instead of paying ordinary income. He lost the whole position to margin calls and still has a big tax bill from the original sale... The third was not an employee option scheme but just margin - this fellow had gotten a 300% increase in his position in SUNW and cautiously added a little on margin when the stock was about 55 (split adjusted). When the stock dropped back, SUNW management made statements about how they would not be affected by the downturn that was hitting the PC business - they were in a different market. So this guy went to full margin when the stock was around 40, to "make up his losses". Needless to say, he was also wiped out. I had consistently suggested to all three of these people that they take their gains of the table and use their margin capability only to cover potential risk (say a put sale), not for any obligation they could not clear in a week. They all slammed me for being a conservative fuddy-duddy who did not understand the new economy. Some of that was public on the SI SUNW thread... There is no joy in saying "I told you so" to people who went from being winners to being losers in a span of 6 months.

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