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To: Geoff Nunn who wrote (135458)	7/3/1999 3:50:00 PM
From: Chuzzlewit	Read Replies (4) \| Respond to of 176387

Hi Geoff, I am a bit surprised that in your example the cost of the spread is only $.125/sh on six-dollar options. It is my impression that in this price range the spreads are frequently $.50 or so, although granted they are often less. However, a spread of only 1/8 point on a $6 option strikes me as very atypical. I used half of the spread for the analysis, and assumed that the options would be repurchased on the day of expiration. Maybe the spread needs to be increased from 1/4 to 1/2 (so that instead of 1/8 of a point you would use 1/4), but even so, on 500 shares we are not talking about a great deal of money. So, in your example of an option with a striking price of $30, and a stock price of $36 (the intrinsic value is $6) I assume that the bid would be $5.75 and the ask $6.25. The brokerage fee situation is germane because it can add significantly to the costs of your strategy given my broker's fee schedule. For assignment of stock from 5 to 20 contracts the brokerage fee is $50 and the cost of a market order is $15, whereas for purchase of 5 contracts the fee is $27.50. Therefore, neglecting the spread for the moment, your approach would involve two market order commissions ($30) plus an assignment commission ($50) for a total of $80, whereas simply repurchasing the options would cost $27.50. If the spread of the shares were 1/16 that would add $33.62 for a total of $113.62, while the spread on the repurchase would be $125 for a total of $152.50. The difference of 38.88 is trivial in this case, although it could become quite large as the number of contracts increases.