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Strategies & Market Trends : SHorting Stocks: Education/strategies/techniques

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To: Roger A. Babb who wrote (10)	2/25/1997 3:59:00 AM
From: Craig Gantner	of 99

>> I do not short companies who have a lot of cash reserves and good talent. Who knows what wonderful new product may spring forth from their secret research! >> Hi Roger ... One technique I use for a good company that gets ahead of itself is to set up a kind of synthetic short position. Depending on the situation, buy the stock and write some longer term, in the money, covered calls (the premiums can be fantastic). If you are really bearish over the medium term, use the profit to buy intermediate term out of the money puts. If the stock tanks as you expect, you can play it different ways, sell the puts and take your profit, then buy back the call for substantially less and go long on the stock, or sell the stock and go naked on the call, or stay long on the stock and let the call expire. Anyway, if you are wrong and the stock launches, it will get called away, your puts will expire worthless, and you will only be out the commisions. (and lost opportunities of course). Did I explain that clearly? I think there are a lot of companies right now who may qualify as good over the long term but somewhat ahead of themselves over the short term.

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