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Strategies & Market Trends : Gorilla and King Portfolio Candidates -- Ignore unavailable to you. Want to Upgrade?

To: StockHawk who wrote (6182)	9/11/1999 1:43:00 AM
From: Normandi	Respond to of 54805

StockHawk. I enjoyed reading your options analysis with RMBS, and certainly not offended. Cheers Norm

To: StockHawk who wrote (6182)	9/11/1999 1:49:00 AM
From: Uncle Frank	Read Replies (1) \| Respond to of 54805

>> I trust no one will be offended by this. I was fascinated by it, StockHawk. It was an excellent explanation of an advanced options maneuver; even I got it <g>. Is this an investment approach that you use, and if so, to what degree? Wouldn't you have to pay margin on the naked puts? Franq

To: StockHawk who wrote (6182)	9/11/1999 8:18:00 AM
From: Bob Bosco	Read Replies (2) \| Respond to of 54805

OT -Stockhawk: What are the tax consequences of this type of play? I have been considering options for quite awhile but have found it much easier to just buy G&K stocks and hold long term for maximum of 20% capital gain. Question: When you do the initial 2 option plays is the $8600 taxed as ordinary income(short term gain)?? I assume the actual buying and selling of the shares is based on how long they are actually held and is a taxable event at the time they are sold. Obviously your play is a real money maker regardless of how it is taxed, but I am interested to determine actual cash flow timing and after tax return. I have lurked on this board for quite awhile now and have found it to be the best around. It helped me discover Q, which is about 17% of my portfolio. Cisco is about 20%. Intel is about 11%. Microsoft about 5%. Hope I can contribute some positive info in the future. Bob

To: StockHawk who wrote (6182)	9/11/1999 11:52:00 PM
From: Kayaker	Respond to of 54805

After buying the stock for $9200 and taking in $4300 and $4500 your net cash outlay would be $400. I enjoyed your option strategy, but have to quibble with the $400 as the only cash outlay. In order to short the put, your brokerage will require a sizable amount of cash or marginable securities (varies by brokerage). In my case, (TD Waterhouse) I have to have 25% of the stock price (25% x $9200 = $2,300) plus the put premium ($4,500), total = $6,800. So unfortunately, it ties up quite a bit of cash or margin.

To: StockHawk who wrote (6182)	9/12/1999 12:45:00 AM
From: Wyätt Gwyön	Read Replies (3) \| Respond to of 54805

StockHawk, thanks for that interesting options play suggestion--again exploiting the high premiums afforded by RMBS's high implied volatility. I tried to find a similar description to what you described in my options book, but couldn't find an exact match. The nearest thing I found was a "short straddle"--the simultaneous sale of calls and puts at the same strike. This differs from your example because you are covering your call and selling the put naked; also, you are using different strikes. Otherwise, though, it seems to be the same. One question I would have (aside from Bob's pointing out that you really have more cash tied up here than $400 (more like $6800) due to the need for margin coverage on your naked put) is, who would this strategy make sense for? If you were to strip away the common purchase of 100 shares, and set the put and call strikes to match, then you would have a textbook short straddle. This means you think the stock price will remain in a range tighter than the premiums you are receiving. Actually, you (or I, anyway) probably don't think that--2 1/2 years from now, RMBS will probably be worth a lot more or a lot less than it is now. So, what is another play? Well, there is the long straddle, whereby you conversely BUY a call and a put w/same strike and expiry. In this case, you are betting that the stock price will move outside the combined premiums you paid for the put and call. The only problem with that is, you have to pay those crazy high RMBS premiums! That gets us back to the question: Where do you really think the stock is going? Well, probably up, but I'd like some protection since the stock's so crazy! That's where the covered calls can help--I buy 100 shares of underlying, sell 1 covered calls for essentially half the value of underlying, and then I buy 50 shares common. That approach should do better (with less downside risk) than unhedged common all the way up to double the current price, I believe. JMHO, Greg

To: StockHawk who wrote (6182)	9/12/1999 8:27:00 AM
From: Jill	Read Replies (3) \| Respond to of 54805

Your options play: if you are doing this in a retirement account, theoretically great. (Also, as somebody else posted, you tie up margin collateral and have to be willing--but I don't mind, as you might as well use it for something, and I don't buy on margin) But if you also want to hold onto RMBS (consider for instance how much gorillas like MSFT INTL or prince/kings like DELL made over 5 or 10 years---when DELL was rocking you could've invested $5,000 in 1992 and be a millionaire 5 years later...) or any stock you are bullish on, this particular profit may look small down the line, even though the percentage return is fantastic. And if in a regular brokerage account you'd face tax consequences, which you might not want at that point. Maybe I'll ask ed to come over and comment on this. When stocks like RMBS or QCOM for instance are so volatile, he has apparently been looking at a trading range and selling puts/covered calls that he sometimes can actually buy back later that day or certainly that week for a big profit. This way you reduce your cost basis continually. On the other hand, you're watching the trading range, selling covered calls when overbought and puts when oversold, only with the intention of making some $. Haven't done it myself but think it's a good strategy for the experienced. Jill