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Pastimes : The Justa & Lars Honors Bob Brinker Investment Club -- Ignore unavailable to you. Want to Upgrade?

To: Boca_PETE who wrote (7976)	8/22/1999 6:40:00 PM
From: E_K_S	Read Replies (3) \| Respond to of 15132

To Thread: Brinker talks about hedging a portfolio by selling SPY's or QQQ short. He does not like buying Put's because of the cost of the time premium. He neglects to mention that when selling SPY's short, you still have to pay any dividends due each quarter (about 1%). Also unless you can negotiate a special arrangement with your broker, you receive no interest earnings from the short proceeds that sit in the brokerage account. Finally, the best method I have discovered for hedging (which Brinker has not discussed) is to sell deep in the money covered calls. This only works for individual stocks that you already own but it can provide a good hedge w/o initiating a capital gains tax event. I believe one caller had Microsoft at a very low cost basis. If a Bear signal was given, this investor could sell deep in the money call s six month's out ... say Feb'00 65 calls. By selling an equivalent number of covered calls for shares held, you could receive a $20 price for each call sold and hedge you long position. As the BEAR Market progresses and MSFT falls in price, the price of the call falls in the same amount. You eventually would buy back your covered calls at a much lower cost and if necessary you could continue to roll over these covered calls out into the future. The investor receives the proceeds from the sale of the calls which earns interest income while you wait for the BEAR to end. Also all dividends will continue to be earned even when such a hedge is established. If you have several stocks in your portfolio this is one strategy you can use to hedge your gains. My approach will be to both sell equities and hedge those that I want to continue to hold. Short term capital gain taxes must be paid on the gains from the hedge where applicable. EKS