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Technology Stocks : Broadcom (BRCM) -- Ignore unavailable to you. Want to Upgrade?

To: BrooklynDave who wrote (1943)	6/18/1999 6:57:00 PM
From: Farfel	Read Replies (2) \| Respond to of 6531

Open interest is merely the number of outstanding contracts which currently exist on the underlying issue. I don't know if it is better or worse; I find it neutral----it is just telling you where the majority of the people happen to be putting their money-----are there more "puts" or "calls" on the underlying issue---BRCM----in this case. I rarely use them as the factor in my own option trades because i rarely follow the herd and also, I really have been "burned" by buying "too close" or "too far out of the money" on some options. O'Neill suggests that only those who are veteran stock purchasers become involved in options; and then, if they do, don't buy an option any closer than "6 months out" in time. I obviously am not being totally in line with O'Neill's thoughts in that I am invested in August --- only 2 months away---but the way I figure it is if the option extends BEYOND the earnings date----then I have a better chance of not "biting the bullet" if the stock does a quick downturn on me and doesn't recover. Volatility---the beta factor----is only 1 element of an options price so buying them farther in advance of expiration is a good idea. BRCM has a high "beta"----fluctuation price (whether up or down)----and as a result demands a "high premium"----all you longs out there could make a good income just "writing calls" on BRCM or "writing puts"----(means be a seller of them). But as a result of its high beta, BRCM options are extremely expensive, forcing me to come closer than usual on the "time" which also is one of the factors in determining option price (in other words January 2000 Leaps cost more than August calls at the same "strike price"----kind of like "renting" the stock. In fact that's how I view options: " I am a renter, not a buyer"----I like to move in, enjoy the view, and then move out at winter time. But what is funny is that the return on options, if they turn out to be the right call (no pun intended) is astronomical. Again, keep in mind, if the stock doesn't go up you can lose the entire price of the option----1500 for the August 100 Call; but if you are right you can make anywhere north of 1500 up to the $5200 dollars my old August 60 Call is now worth-------why did I bring them up, because somebody commented on the fact that they were getting "squeezed by the margins"------and I know a couple of friends who have had to fork over money on "margin calls" on both NITE and CMGI. So I would rather put up only 1500 for the 100 shares----that's all I can lose !!! But what can I win?-----it is unlimited, as much as the market will pay; and the recent number I have heard is 150 by the Merrill Lynch analyst. So, options are often misunderstood. The short term people, for example the June players-----i couldn't possibly agree with them---too close for comfort timewise----I always like to be guaranteed that there will be an "earnings" report between me and "expiration day"----if the earnings are bad----don't worry, the "longs" will lose more money than I, especially if they are on margin; if the earnings are great----I will probably at least double my money----maybe more. Just one quick remembrance, I remember taking a promotional exam in my company in which I couldn't have cared if I passed or didn't ---why? Because it was the first week in May (about 9 years ago) and I had purchased 7 Calls on Microsoft (some 100 Aug) and when we went into the weekend, I sold to make a quick small profit. The following week, exactly what I had been hoping would happen, happened: "A Short Explosion"----the stock was going up, squeezed shorts, and the stock went up more !) It went from about 102 up to 127 a share in 1 week. And as I waited for the exam, i sat with a copy of the IBD in my hands looking at the numbers----my $5000 worth of options were now worth $35,000. And I had sold them the prior week on Friday at closing. 700 Percent is not hard to take and I walked around like the fellow in Coleridge's "Rhyme of the Ancient Mariner" repeating the story of "Did you see what Microsoft did?" That is the upside potential of a good option-----big money, and quick; the downside, you could lose it all-----the risk---only the price you paid for the option----the benefit: risk limited to investment, potential unlimited. In my opinion, on other less expensive stocks, follow O'Neill's advice, by Leaps and give yourself, the market, and any given underlying issue time to recoup any "bad information" which might shake any of the items I mentioned. Time actually becomes "less expensive" the "further out" you go, and it will allow you to play some Leaps like "surrogate stocks".