Go Naked
Strategy offers big returns, and risks
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Excerpts:
So I have developed a four-point risk-control program to reduce the possibility of large losses on those 10% of the trades. The first element, as noted, is to write only short-term, deep-out-of-the-money options.
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Second, I strictly limit the number of options that I write for each $100,000 of equity in the account. This rule is the foundation to limiting one's exposure to loss; disregarding this is probably the biggest source of problems people have had with uncovered option writing.
<Picture: [Illo]>
Third, I check the market value of my options daily to verify the relationship to value of the account. If the option prices move up, then my risk has increased without any action on my part, and it may become necessary to reduce that risk by closing out options.
Fourth, and perhaps most important, is to have a stop-loss order entered on the floor of the exchange for each option. Many traders do not want to tie their hands in advance of any adverse moves. But the best time to decide when to exit a position is when you enter it. By placing my stop-loss orders in advance, I eliminate the chance of making a possibly fatal mistake later. When things go badly, traders often decide to wait just a few minutes longer in the hope that things will turn around. And sometimes the traders never act and things get only worse.
One key attraction of uncovered options writing is that it can be used equally well in a bear market or a bull market. Who should utilize this strategy? Only those with money they can afford to lose. As with any risk-capital investment, when properly managed, the rewards can be handsome indeed.
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Bruised and Battered Adaptec Attracts Interest; Don't Bet on a DRAM-Price Recovery 'til 2000
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Bernstein argues that Adaptec could attract a buyer. He suggests Intel or 3Com might be interested, and Rossi adds National Semiconductor and Advanced Micro Devices to the list of potential acquirers. Alternatively, Bernstein says, Adaptec could do a large stock repurchase, perhaps in the form of a Dutch auction. The company recently reinstated an already authorized 10 million-share repurchase plan, but Bernstein envisions something a little more dramatic.
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Micron Technology shares have managed to avoid the stock market's recent carnage. Micron, in fact, has risen well over 50% since mid-June, last week gaining 15/16, to 34 1/4 .
The rise reflects a spreading Wall Street view that prices of memory chips, in particular DRAMs, have finally stabilized, and have begun to show signs of recovery. Unfortunately, it's not true.
Jim Handy, memory-market analyst for Dataquest, contends that conditions in the DRAM market remain "miserable." Spot market prices for memories, he says, remain below contract prices, which suggests continued excess.
Says Handy: "Prices are not headed up." He notes that Micron at the moment does have the advantage of being the leader in 16-megabyte memories operating at 100 megahertz, which are required for use with certain new Intel parts. Pricing for those chips, Handy says, has been better than for comparable slower parts operating at 66 MHz.
The better pricing for the faster memories, he feels, reflects the fact that Micron's rivals have been slow to produce comparable chips. Handy, though, says other DRAM makers are "very close" to entering the market, which is likely to pressure prices on those particular chips. Says Handy: "I suspect this could be a very short-lived victory for Micron."
Meanwhile, Handy thinks that overall DRAM capacity remains about 20% too high. Barring additional plant closings, he says, overcapacity will continue into the year 2000.
Lily Wu, a Hong Kong-based analyst with Salomon Smith Barney, notes in a recent report that DRAM makers have been accelerating the pace of "die shrinks"; in other words, they're making chips with smaller lines, increasing the number of parts they can produce from each silicon wafer. She contends that DRAM makers can now get 400 64-MB memory chips from an 8-inch wafer which nine months ago would have provided only 150 chips.
Wu also observes that DRAM capacity will be further expanded by Micron's plan to upgrade the production lines it's acquiring from Texas Instruments. She writes: "We expect neither the DRAM fortunes nor DRAM equipment sales fortunes to improve until 2000 at the earliest."
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Privatizing Social Security - Gene Epstein
It's an idea whose time has come, no matter what the stock market does. Ironically, the worst problem might be too much success. Getting a cushier retirement without ponying up more. What happened in Chile.
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A new cash cow may be coming to Wall Street: the privatization of Social Security.
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Social Security privatization is a good thing, even though now may be the worst possible time to bring it about. The irony is that the greatest bull market in history, which is supposed to bail the system out, might well be closer to its end than to its beginning, as stocks' recent gyrations may indicate. Because the Dow has had such a strong run, it could eke out merely minuscule gains over the next decade or so without seriously undermining its long-term record. But that wouldn't provide the kind of bang needed to pad the retirement assets of the oldest of the Boomers (Clinton included), who in just 10 years will turn 62 and will become eligible for benefits.
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In either case, how much money leaves the current system and how much remains in it is also a matter of choice. Chile and Mexico, among other nations, have, in effect, decided to go all the way, choosing to end social security as the U.S. knows it by fully replacing it with a semi-private system of individually managed accounts.
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IMHO: It is a very long article. i did not copy all excerpts.
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