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Strategies & Market Trends : Roger's 1997 Short Picks
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To: Dan Lisman who wrote (7890)12/5/1997 11:51:00 PM
From: Mama Bear  Read Replies (1) of 9285
 
>>> Alex, Not counting commissions, Jan 50 puts have a premium of 9 1/8 based on current price of 56 1/4 and put ask price of 2 7/8<<<

This assumes that the Jan50 puts would not increase in price were the stock to fall to 50. It is an incorrect assumption. If Yahoo! were to fall to 50, the Jan50s would probably be trading just north of 6. The Jan60 puts however would not gain 6 1/4. Even if it did, 6 on 2 7/8 is a double, and 6 1/4 on 7 7/8 is not. The better ROE is always found on the strike the furthest out, that has a bid. Jan35 calls would be a better play than any other January strike. Fellow last month bought Yahoo! Nov40s for 1/4 when the stock was 52 and there was less than 2 weeks (perhaps less than 10 days) to expiry. The stock fell to 45 and he had a 4 bagger. I'll guarantee you the Nov60 puts did not do as well on a % basis in the same time frame, and tied up more capital per contract. The object is not to hold until expiry, the object is to sell for a profit and to maximize ROE, and minimize risk. My best option play was to buy Feb50 calls on IOM(G) for 3/16 when the common was ~16. I got almost a 4 bagger the day IOM(G) moved to the NYSE and traded as high as 27 (sold for 11/16).

Barb
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