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Politics : Formerly About Applied Materials
AMAT 218.97-0.6%9:41 AM EST
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To: Jacob Snyder who wrote (54696)10/26/2001 10:47:41 PM
From: kdavy  Read Replies (2) of 70976
 
ST trading: Jacob, I am working under the premise that worst we can do is revisit sept/october lows where as the up side has a much higher possibility. Of course the third possibility is that we get stuck in a range.

Here is why I would buy options first.

Let's say amat drops to 34-35. I would buy Jan 50, 2003 leaps. If the stock goes up I will make money but if the stock goes down I will tie up only a small fraction of my cash. If stock goes down to 31-32 range the options price will be down about 25% or so. Now I can buy stocks and sell it for a 3-4 point profit. I will make a larger profit compared to the second scenario described below. I could buy more options if the stock goes down further and accumulate for a longer term. At this time I am not using any stoplosses. I fell market has more upwards potential.

In the other scenario. If I buy stock at 34-35 I will tie up a large portion of my portfolio (I tend to play market like a gorilla warfare, in and out within weeks or sometime days). If the stock falls to 31-32 range and I buy options, then when the stock is at 34-35 I will make a much smaller amount of profit. The option price does not move at the same magnitude as the stock price.

This strategy is for next two to three months. I may change depending on the market. Right now I want to take advantage of the large swings we are going to see next few months.

regards,
kdavy

PS: I am successfully playing this with sunw. I have 100 Jan 11.25, 2002 options. If the stock falls below 9.40 I start accumulating stocks for each 20c drop. When the stock goes above 10 I sell them all. This way I will recover all my option money in two trades. When I sell I don't have to worry about missing a rally. I plan to keep the option until expiry unless the option price triples, then I will sell to close.
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