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Technology Stocks : Dell Technologies Inc.
DELL 138.940.0%Dec 5 9:30 AM EST
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To: Tom K. who wrote (120751)4/27/1999 9:55:00 AM
From: edamo  Read Replies (3) of 176387
 
tom...capacity

if you set the put correctly, the premium will erode from a lesser implied volatility, and time....so your premium instead of weighting you down, actually allows your capacity to increase...the cash sets new long positions...no different than borrowing against margin...if the common goes down, the option premium does not move in parity...envision....it's actually a safe way to access your margin capacity, for the put sale lessens the amount of margin you can tap, until the premium erodes...if you max out on a margin loan at the wrong time, a margin call is likely if the market goes down...my method uses only part of my capacity...and never puts one at risk for additional cash requirements...

the key is selling the put at a point that you feel safe that the premium will not go much higher short term...and definately lower long term.....

assume portfolio capacity 100000 (2000shares dell @45)and 10k cash
sell puts against same...20 x 0145 @ 13=26k premium.
go long 500 shares dell @ 45=22500
position as of today= 2500 shares dell average cost 45
20 x 0145 puts short
13500 cash
as an excercise, i ask you to play devil's advocate, introduce to me the doomsday scenario...keeping in mind the magic dell number is 32....(my scenario is dell at 32 on expiration, portfolio worth 2500x32=80000, plus 13500 cash=93500...enough capacity if assigned to take 90k worth of stock...if dell above 45...2500x46=115000+13500=128500...you only roll forward if the premium has eroded to a low point or if it goes against you..which gives more cash in to increase your capacity and maintain balance)
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