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Technology Stocks : Compaq
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To: Dr. David Gleitman who wrote (38726)12/5/1998 1:53:00 AM
From: Night Writer  Read Replies (2) of 97611
 
Dr. David,
There are several things you can do. I don't know what price you sold the for, but we will discount that at this point. Several things will be assumed here:
1.) Prices on the present CBOE prices.
2.) Assuming CPQ will have no pull back below 37 1/2 big enough for you to close your position at a profit.
3.) You want to retain the stock or at the least be called at a higher price.
4.) You want the opportunity to close the option position at a profit, and retain the stock.
5.) You don't want to just close your current position at a loss.

I suggest you roll the options out and up. That is out in time and up in strike price. Do this by:

1.) Buy the Nov 37 1/2 options back. Do this first so that you don't sell the higher strike price and then get caugh with the 37 1/2 price running up on you. You have now closed your current position. at about 2 1/4.

2.) Sell one or several of the following calls.
a.) Sell April 45 at 2 1/4 (You lose commission expense but are called at a higher price. I don't care for this move. But that is me.
b.) Sell July 42 1/2 at 4 1/2, or 45s should open for trading some where around 2 1/5 to 3. This is better, but not my favorite roll out position.
c.) Sell Jan 2000 LEAPS at 50 are 4 1/2. This is a strong position for just holding the stock. It is mostly time value and will not decrease in value until next fall. If the price of CPQ is 45 or less. Tough position unless you really believe in the stock. If it goes over 50. Don't expect to be called until Jan 2000. Positive aspect is it is a safe play. Bad aspect is Compaq going over 50 before July and you have dead money until Jan 2000.
d.) Sell Jan 2000 LEAPS 40 at 7 7/8, or 45 at 6. Look for a dip and close position by buying the LEAPS back. You have given your self time to do this, or make a better profit if called.

IMHO I would split my positions up. Sell 40% at the Jan 2000 LEAPS 50 for 4 1/2 or 5. That minimizes the loss on closing the Dec 37 1/2 position. I would then wait and see what develops and then sell calls on 20% of the stock. Hold 40% in reserve. Then if the $60 calls open up with attractive prices sell calls on an added 20% of the stock. Hold 20% in reserve until maybe closing out some of the positions for a profit.

Hope this makes sense to you. There are other strategies, but I think this one is best suited to you knowledge level and situation. Sorry if there are typos. It is late and this is long.

Good Luck and Good Hunting.
NW

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