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

To: E_K_S who wrote (7977)	8/22/1999 7:19:00 PM
From: Boca_PETE	Read Replies (1) \| Respond to of 15132

Eric S: If I own stock of my employer in a 401K Plan which I'm not permitted to sell, would the hedge technique you discuss "to sell deep in-the-money covered calls in a taxable account on my employer's stock" provide a good hedge on my shares of employer stock held in my 401K Plan ? P

To: E_K_S who wrote (7977)	8/22/1999 9:29:00 PM
From: mister topes	Read Replies (1) \| Respond to of 15132

You are sadly mistaken in your post. #1 the dividend on spiders is one percent annual not one percent quarterly. #2 the dividend on QQQ is essentially zero. This makes these securities ideal short hedges. Of course you can use deep out of the money options, but Joe Sixpack does not have the sophistication or knowledge to implement such strategies. So the spiders and QQQ are ideal hedging vehicles.

To: E_K_S who wrote (7977)	8/23/1999 3:06:00 AM
From: Dogbert	Respond to of 15132

If you sell calls deep enough in the money to provide serious downside protection, their premium in mostly intrinsic value and little time value. In fact with deep enough in the value calls the bid price may have negative time value. That means you can easily be assigned, which I have, and suddenly you have a cap gains tax bill to pay when your stock is taken. If you write 6 months out and every few months buy back then sell farther out, you have heavy transaction costs, bid/ask spread, plus commissions, for each stock you do this with. I did this once, won't try again. I like the short SPY or QQQ idea much better, I think it's cleaner. Also don't forget that if you write deep in the money calls on an underlying you have held less than a year, your holding period is reset and you've got to start the clock over for a year if you want 20% cap gains tax rates when you eventually sell it. Shorting SPY or QQQ doesn't cause this problem since you are not shorting a "substantially identical" security.