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Strategies & Market Trends : Options for Newbies -(Help Me Obi-Wan-Kenobe) -- Ignore unavailable to you. Want to Upgrade?

To: Mark Z who wrote (1506)	7/8/1999 3:58:00 PM
From: the options strategist	Read Replies (1) \| Respond to of 2241

<I've found going deep out of the money on some i-net stocks can generate upwards to 10% in a week e.g. long CMGI July 100's, short CMGI July 110's can be had for a net debit of 8 5/8 + commissions today> Mark, do you mean going deep in the money? Thanks for your comments. Any others? jj

To: Mark Z who wrote (1506)	7/8/1999 4:19:00 PM
From: RoseCampion	Read Replies (1) \| Respond to of 2241

FWIW, I've found going deep out of the money on some i-net stocks can generate upwards to 10% in a week e.g. long CMGI July 100's, short CMGI July 110's can be had for a net debit of 8 5/8 + commissions today. This, of course is not a recommendation!!! Only pointing out that the returns are there depending on your level of risk tolerance. Right you are, that we all differ in our level of tolerance for risk/reward. For me, for example (using CMGI again), I'd much use the same $10k by putting it in a Tbill and then using that to collateralize the sale of 10 JUL100 puts at about 5/8 each. If the stock ends up anywhere above $100, they expire worthless and I pocket $625 plus the interest on the Tbill, minus one commission. My break-even point including commsisions is about 99 1/2. OTOH, the break-even point on your proposed July 100/110 debit spread (which after your three or four commissions has about the same maximum return as my puts) is less than 109. So is it an slam-dunk that the put is better? Not necessarily. The risk in the call spread is limited - but you start losing money when the stock has dropped less than 10% from its current level (121 to 109). That's not alot when we're talking about an internet stock. The risk in the put sale is unlimited - but doesn't start until the stock has lost over 20% of its value (121 to 99.5). I'd personally take the puts over the spread any day (with appropriate stop losses in place, of course). However, reasonable people might differ on their choice between the two based on their own risk/reward profile. Which is what makes the markets go round. -Rose-